CONTENTSDIGITAL GARAGE ANNUAL REPORT 2015

02–03
04–05

PHILOSOPHY

DG717
717 MARKET STREET, SAN FRANCISCO

HIGHLIGHTSFYE JUNE 30, 2015

06–11

MESSAGE FROM THE CEO

12–15

FINANCIAL PERFORMANCEAND STRATEGY

16–19

MISSION / BUSINESS MODEL

20–41

GROUP BUSINESS ACTIVITIES

42–47

KAORU HAYASHI × JOICHI ITO—FEATURE

48–51

CORPORATE GOVERNANCE

52–65

CORPORATE INFORMATION

Cautionary Statement: Discussions of Digital Garage’s current plans and strategies, and outlooks for future performance, included in this annual report are based on information available
as of the preparation of this report. Digital Garage believes the views expressed are reasonable as of the time this report was prepared. Nevertheless, risk and uncertainty are inherent in
discussions of the future. Users of this report should bear in mind that various factors may cause actual results to differ from expectations or outlooks expressed in this annual report.

DIGITAL GARAGE ANNUAL REPORT

01

01 PHILOSOPHY

For a colony of penguins to survive, they require theirstaple food: fish.
However, the deep ocean in which fish inhabits;
dangerous predators such as sharks and seals preying on
penguin's abode as well.
Despite the possibility of encountering such predators,
the first penguin to courageously jump in is referred toas the “First Penguin.”
The Digital Garage Group was founded on the creed ofbeing the “First Penguin”—having the spirit of stepping
forward to be the first to take up a challenge, withcourage and unshakeable will. With every one of ouremployees guided by this spirit of leading—being thefirst penguin—we will move forward to provide services
that are useful to the world.

“BE THE FIRST PENGUIN”

02

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

03

02 HIGHLIGHTSFY 2015 HIGHLIGHTS
Surpassed the Lean Global Midterm Business Plan
Final-Year Goal of 10 Billion Yen in EBITDA

Continuation of highly selective investment globally andgradual expansion of the investment total

Achievement of the Midterm Business Plan Quantitative Target

Construction of global incubation system completed

EBITDA for the fiscal year ended June 2015:
11 billion yen

Investment expansion to 9.0 billion yen
Investment of

9.0

Expanded investmentbyin 3 years

billion yen

4.3 times

2015

Investments in
Kodansha Ltd. and Wikia
content businesses

2013

Establishment of
incubation center2014
Launch of the
BIG MINING
ad product

EBITDA

11

120
2012
Capital andoperational alliancewith Dentsu

100billion yen
12 / 1480
2012
Acquisition of
VeriTrans Co., Ltd.

60
40

7/ 15

5.9

6.6

2.1

04

DIGITAL GARAGE ANNUAL REPORT

12 / 142.9

11/ 1320
0

11/ 134 / 13

FY 12

FY 13

FY 14

FY 15

FY12

FY15

DIGITAL GARAGE ANNUAL REPORT

05

03 MESSAGE FROM THE CEOMESSAGE FROM THE CEO

KAORU
HAYASHI
Adding a New Page to the History of Internet BusinessWe established our business based on the conviction that we must contribute to society
by continuously creating new contexts and we remain committed to that idea
as we press on with the development of next-generation Internet business.
With “Providing new contexts” as our watchword, we are moving forward
to add a new page to the history of Internet business.

06

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

07

03 MESSAGE FROM THE CEO

About the New Midterm Business Plan

New Midterm Business Plan Quantitative Objectives

Recap of the Three “Lean Global” Years
For our Midterm Business Plan, established in August
2012, we declared the three years covered by the plan
to be the “1st stage of DG’s global management centered around Global Incubation.” With the concept of
the plan expressed as “Lean Global,” we set for ourselves the goal of achieving EBITDA of 10 billion JPY
for our fiscal year ended June 2015.
Having recorded June 2015 consolidated results
including net sales of 38.09 billion JPY (+12.8% YoY),
operating income of 4.81 billion JPY (+84.4% YoY),
ordinary income of 7.61 billion JPY (+71.3% YoY), net
income of 5.08 billion JPY (+78.5% YoY), and EBITDAof 11.05 billion JPY, we not only booked record highresults for the fourth year running but also achieved
our midterm performance objectives.
Furthermore, regarding the Lean Global Midterm
Business Plan concept, our DG717 incubation centerhas made itself a part of the local startup community in the US west coast city of San Francisco—a
networking hub linking the US, Japan and mainland Asia—by holding various events and offeringco-working space. This, together with growing collaboration with Betaworks—a leading incubator in
New York City, on the US east coast—has enabled theestablishment of the Global Incubation system DG
had envisioned. Building on this success, the coming three years will be a time for transitioning Global
Incubation to a full-scale operation phase.
Turning to the individual business segments, steadyprogress was achieved in expanding earnings bases

08

DIGITAL GARAGE ANNUAL REPORTin preparation for the coming midterm business plan.
The Incubation Segment saw five of its investees(inside and outside Japan) achieve IPOs over three
years, and its total net investments grew to 9.0 billion
JPY as of June 30, 2015. New investments totaling
8.0 billion JPY were made in new growth fields, suchas IoT and O2O (Online-to-Offline), in Japan, and digital currency outside Japan.
In the Marketing Segment, the performance-basedad business, consisting mainly of affiliate marketing, grew at an average annual rate of 35% overthree years, greatly exceeding the industry average and yielding high growth for the segment as
a whole. In addition, upfront investments wereactively made in the smartphone ad and data
science businesses—viewed as global strategic
businesses going forward—ramping up measurestargeting further growth.
The Payment Segment, benefiting from e-commercemarket growth in Japan, increased its annual transaction volume to approximately 1.0 trillion JPY for
the fiscal year ended June 30, 2015. Nevertheless,with financial sector and settlement business conditions entering a period of even greater change, acourse correction—including a strategic shift making
econtext Asia (publicly traded in Hong Kong) into awholly owned subsidiary—was made to effect a foray
into the wide-open FinTech sector melding financial
services and IT.

FY15.6

FY18.6

Income Before Income Taxes

9.2 billion JPY

15.0 billion JPY

Consolidated ROE

17%

> 20%

Ordinary Dividend Payout Ratio

5%

> 20%

Beginning with the fiscal year ending June 2016, DG
is implementing a new Midterm Business Plan to takeus to the next stage. The watchword for this new plan,“IT/MT/FT X Open Innovation,” signifies our aim to
give rise to new added value spanning the boundaries
of our individual businesses by adding the concept ofOpen Innovation to IT (Information Technology), MT(Marketing Technology), and FT (Financial Technology), which we have relied on to date.

To achieve the objectives set forth in our new Midterm Business Plan, we have decided to create a
new earnings source in the form of the Media Incubation Segment. The mission of this new segment is
to create next-generation media businesses along
the lines of two successful and extremely popularInternet businesses in Japan—Kakaku.com, an online
price comparison and shopping site, and Tabelog, arestaurant review and advertising site.

Under the new Midterm Business Plan, our quantitative targets for the fiscal year ending June 2018 include
income before income taxes of 15.0 billion JPY (annual
growth of 17%), consolidated ROE of 20%+, and a consolidated dividend payout ratio of 20%+. We have decided to use pretax earnings as a performance indicatorbecause the performance of our individual businesssegments is reflected in pretax earnings and because
we plan to adopt International Financial Reporting Standards (IFRS) in our fiscal year ending June 2017.

We have also decided to change the names of ourexisting business segments. Going forward, thesewill be known as the Incubation Technology Segment, Marketing Technology Segment, and Financial
Technology Segment. As a consensus within the DG
Group, it was decided that the word “technology”
should be added to the names of our existing business segments to indicate our intent to be pioneering
adopters of the latest technology and use it to offer
new value and engage in new businesses.

Business Segments
(New)

IT

Incubation
Technology

MIMedia Incubation(formerly Incubation)

MT

MarketingTechnology(formerly Marketing)

FT

Financial
Technology(formerly Payment)

Creation of new media businesses
along the lines of
Incubate businesses with media
at the core
Commercialize seeds/R&D resultsfrom inside and outside the Group
Accelerate investee and otherbusiness growth, and alliances

DIGITAL GARAGE ANNUAL REPORT

09

Shareholder Returns

Toward 2020

DG places returns to shareholders among its mostimportant management concerns. Decisions on dividends are based on considerations of matters such as
the company’s financial condition, performance trends,
and capital needs for growth investments. We do ourbest to make the most of opportunities to pay returns
especially when we have realized significant investment gains in our incubation business.
For the fiscal year ended June 2015, we declared a
per-share dividend of 25 JPY, consisting of the ordinary dividend of 5 JPY per share and a special dividend of 20 JPY per share to commemorate the 20th
anniversary of our founding. The dividend payout
ratio came to a record high 23.1%.

Given our emphasis to date on reinvesting gains in
our incubation and other businesses, we have foundit difficult at times to pay adequate shareholder
returns. However, considering factors such as ourmarketing and payment businesses developing to
the point of generating stable earnings under our
previous Midterm Business Plan, we have included in
our new Midterm Business Plan the goal of achieving
a dividend payout ratio (for ordinary dividends) of
20%+ in the fiscal year ending June 2018. Furthermore, we will continue to make special efforts to pay
shareholder returns when major incubation successes are achieved.

Per-Share Dividends and Dividend Payout Ratios

20%+

23.1％

Compared to three years ago when we adopted our previous Midterm Business Plan, the environment surrounding Internet business has undergone drastic change. The
speed of this change is likely to grow exponentially in thelead-up to the 2020 Tokyo Olympic Games. As a result,
we anticipate that the boundaries between our three corebusinesses—IT, MT, and FT—will gradually become lessdefined. The mission of the Media Incubation Segment is
to link these businesses by discerning the future of technology evolution, and to create new businesses along thelines of Kakaku.com and Tabelog that will play useful roles
for society. Toward that end, contexts that visualize an era
in which people wear high-performance computers, andall manner of objects are connected to the network via
IoT, are indispensable.
With that thought in mind, we will act globally overthe coming three years with renewed appreciation for“Creating New Contexts for a Better Society,” the concept we have embraced since our very beginning. We
look forward to the ongoing guidance and support ofour shareholders and other stakeholders as we move
forward along this path.

Kaoru Hayashi
President and Group CEO, Digital Garage, Inc.
Chairman of the Board, Kakaku.com, Inc.

20
8.6％

8.2％

Philosophy

DG CREDO

4.5％
5

5

5

FY13.6

FY14.6

FY15.6

Commemorative
dividend

Ordinary
dividend

FY18.6
Dividend
payout ratio

Ordinary dividend
payout ratio

TENACITYOPENNESSINTEGRITY
AGILITY
COURAGE
Think for yourself and question authority.

—Timothy Leary10

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

11

04 FINANCIAL PERFORMANCE AND STRATEGYFINANCIALPERFORMANCEAND
STRATEGY

Implementing a Financial Strategy to Create an Optimal Capital StructureManaging based on Pretax Net Income

DG is constantly aware of its balance of capital andliabilities, and pursues financial strategies always withthe goal operating with an optimal capital structure.
We believe that what constitutes an optimal capital structure changes depending on factors suchas business strategies and the capital procurement
environment. As such, we engage in capital procurement activities aimed at achieving an optimal capital
structure for the business and financial risks at hand.

MAKOTO SODA
Board Director (in charge of finance)

Business Performance for the FY 2015
For FY 2015, we recorded our fourth consecutive
year of record-high results, with net sales of 38.08
billion JPY (+12.8% YoY), operating income of 4.81
billion JPY (+84.4% YoY), and ordinary income of 7.61
billion JPY (+71.3% YoY). In addition, with EBITDAof 11.1 billion JPY, we achieved the EBITDA target of
10 billion JPY included in our Lean Global Midterm
Business Plan, announced in August 2012.
Behind our success was significant growth in both
net sales and earnings in all three of our businesssegments—incubation, marketing, and payment.
Making a particularly big contribution to our record
earnings was the Incubation Business, where several of our venture company investees inside andoutside Japan completed IPOs, resulting in major
investment gains.

Net Sales (JPY in Millions)

The Marketing Segment, another core component of
our earnings base, achieved growth in excess of theindustry average, and enhanced its profitability, by
focusing on the high-return performance-based adbusiness. To make big data into a new key earnings
source, it also moved forward with related upfront
investments and organizational enhancements.
The Payment Segment, benefiting from growth ofthe e-commerce market in Japan, saw steady growthin its mainstay credit card and convenience store settlement businesses, and increased its annual transaction volume to 976.8 billion JPY, basically making
itself a trillion-yen player in the industry. In the courseof preparing the Payment Segment for its next stageof growth, econtext Asia Limited, a mid-tier holding
company in the payment industry, was made into awholly owned subsidiary.

Operating Income (JPY in Millions)

20,20013,846 14,118

15,622

18,128 17,887
1,795

472

1st
half

2nd
half

FY13.6

12

1st
half

2nd
half

FY14.6

DIGITAL GARAGE ANNUAL REPORT

3,070

1st
half

2nd
half

FY15.6

1st
half

849

2nd
half

FY13.6

1,739

812

1st
half

2nd
half

FY14.6

1st
half

2nd
half

FY15.6

During FY 2015, DG made econtext Asia Limited, previously an FT Segment consolidated subsidiary and publicly traded on the Hong Kong Stock Exchange, into awholly owned subsidiary. After considering businessrisk for the FT Segment, and conditions in the capitalprocurement environment, it was decided that financing for that transaction should be obtained in the formof bank borrowings. As a result, our equity ratio fell to33.1% from 42.9%, and our asset/equity ratio increased
to 2.67. Considering economic conditions in Japan andother parts of the globe, and factors internal to DG, webelieve these figures indicate we are close to an optimal
financial structure. Pursuing strategies for operating

under an optimal financial structure will continue to bea key objective moving forward.
As an Internet business incubator, DG engages inbusiness activities oriented toward incubation in allof its business segments and believes that income
before income taxes best reflects all of its businessresults. We, therefore, place great importance on
income before income taxes as a management indicator for enhancing corporate value. Accordingly,
beginning with our investment securities report for
the fiscal year ending June 2016, we will use income
before income taxes, instead of operating income,to report segment business results. This is also partof our preparations for adopting International Fiscal
Reporting Standards in the future.
Going forward, we will continue to actively engage
in investments that will thoroughly prepare us forsustainably increasing income before income taxes.
At the same time, we will also take the steps necessary to maintain an optimal financial structure for thebusiness and financial risks at hand.

ROE and Shareholder Returns
ROE, of course, can be broken down into returnon assets and the asset/equity ratio. DG, however,focuses on optimal capital structure and income
before income taxes—important elements of ROE—
as two key management indicators. While we haveannounced the inclusion of a 20%+ ROE as one of
our Midterm Business Plan objectives, ROE itself is
not a financial objective; rather, we believe that ROE
will rise as a result of our implementing an optimal
financial strategy and expanding our business.
For FY 2015, ROE came to 17.2%, which was significantly higher than the previous fiscal year’s result of
10.1%. The increase can be traced to rises in both thereturn on assets and the asset/equity ratio, and we seethese in turn resulting from growth in income before
income taxes and our pursuit of a financial strategy
aimed at achieving an optimal financial structure.
Returns to shareholders, as we have stated in our
Midterm Business Plan, is one of our most importantmanagement concerns. In pursuing our business,
however, we face significant investment demands
and, therefore, believe dividends should be paid notin accordance with some predetermined framework
but as the result of efforts to balance distributions tostakeholders with investments for growth, in light of
the fiscal year’s cash flow and investment demands.

ROE
25.00%

20.00%

15.00%

10.00%

5.00%

FY11.6

2015
ROE
17.2%

2018
ROE
20%+

FY15.6

FY18.6

DIGITAL GARAGE ANNUAL REPORT

13

04 FINANCIAL PERFORMANCE AND STRATEGY

Discussions of Key Performance Indicators

1 Net Sales(JPY in Millions)

40,0002 Operating Income

38,0876,000(Times)

4,810

20,0003,000

40%

10,000

1,500

0

0

Net sales have risen in each of the past five fiscal
years, with the most recent figure—38.0 billion
JPY—nearly four times the level posted five years
ago. This is the result of tremendous sales growthin all three business segments—the Incubation Segment, which has seen a series of investees go public amid favorable market conditions; the Marketing
Segment, which has thrived on growth in the fieldof Internet advertising; and the Payment Segment,
which now has a settlement platform among thelargest in Japan.

3 Ordinary Income(JPY in Millions)

8,000

35%
30%
FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

Over the past five fiscal years, there was a period
during which operating income performance wasless responsive than hoped. The last three fiscal
years, however, have been a period of enormous
growth and the result for FY 2015 set a record, at
4.8 billion JPY. Growth leading to the establishmentof stable earnings capability in two enabling platforms—the Marketing and Payment segments—andgains from the IPOs of Twitter, Inc. overseas andJapanese companies such as Media Do Co., Ltd.,
Bengo4.com, Inc., and CrowdWorks Inc. in the Incubation Segment contributed to the growth in operating income.

4 Net Income

7,610(JPY in Millions)

6,000

5,081

4.00

50%
45%

FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

6 Asset/Equity Ratio(JPY in Millions)

4,500

30,0003.00

33.1%
FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

At 33.1%, the equity ratio for FY 2015 was 10 percentage points lower than for the previous fiscal year.
This decline resulted largely from the move to makeecontext Asia Limited, previously a consolidated
subsidiary listed on the Hong Kong Stock Exchange,
into a wholly owned subsidiary. The change in equity
held and other impacts of the acquisition of additional econtext Asia Limited shares caused declines incapital surplus and minority interests, and ultimately
a 7.4 billion JPY reduction in net assets. As a result,the equity ratio fell by approximately 5 percentage
points on the year.

1.00

8 ROE

10%

18%

6.5%

4,000

3,000

4%

12%

2,000

1,500

2%

10%

0

0

FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

DIGITAL GARAGE ANNUAL REPORT0%
FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

Gains on sales of investment securities, which comprise a portion of the earnings from DG’s incubation
activities, are recorded as extraordinary income.
During FY 2015, Kakaku.com executed a share buyback and DG responded by selling a part of its holdings. Gains from that sale contributed to DG’s net
income figure of approximately 5.0 billion JPY forthe most recent fiscal year.

17.2%

16%

4,500

6%

FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

In FY 2015, the asset/equity ratio rose 0.4 percentage points to 2.67. The reason for this was a decreasein net assets and an increase in total liabilities to 22.9
billion JPY, partly because of an increase in borrowings. The borrowed funds were used to turn a consolidated subsidiary into a wholly owned subsidiary.
The decision to finance this transaction with borrowed funds was made based on consideration of
the current capital procurement environment andthe impact of financial leverage in bringing about
the optimal financial structure for current conditions.

7 ROA

8%

2.67

2.00

6,000

When Kakaku.com was made into an equity method affiliate in 2009, DG began recording its share of
Kakaku.com’s net income as non-operating income.
Growth in Kakaku.com’s net income, together withgrowth in DG’s operating income, produced record
ordinary income for DG in FY 2015.

14

5 Equity Ratio

14%

8%
FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

For FY 2015, ROA (Net income/Total assets) rose by
2 percentage points from the previous fiscal year, to
6.5%. An increase in net income to a record-high 5.0
billion JPY made this possible despite a 15.5 billion
JPY increase in total assets. Over the past five fiscal
years, ROA has fluctuated somewhat, but basicallyheld steady at around 5.0%. We see this as evidence
that increases in total assets are steadily bringing
about higher sales. Nevertheless, we aim to increase
our asset efficiency and boost ROA further.

FY11.6 FY12.6 FY13.6 FY14.6 FY15.6

ROE for FY 2015 came in at 17.2%, a significant
increase compared to the 10.1% result for the previous fiscal year. The increase can be traced to rises
in both return on assets and the asset/equity ratio.
It also reflects record-high net income of 5.0 billion
JPY and a 7.9 billion JPY decrease in net assets.

DIGITAL GARAGE ANNUAL REPORT

15

CONTEXT COMPANY
Think for yourself and question authority.
—Timothy Leary

MISSION AS A CONTEXT COMPANYREAL & CYBERLOCAL & INTERNATIONAL
MARKETING & TECHNOLOGYPRESENT & FUTURE
16

DIGITAL GARAGE ANNUAL REPORT

Since its establishment 20 years ago, Digital Garage has put itself forward as a company thatcreates contexts for the Internet era. In using the word, “context,” we mean sharedunderstanding based on relationships, environments, culture, and ideas.
We established DG as a company that would explore ways for creating Internet contexts
incorporating real space and cyberspace—which was set to expand by leaps and bounds—
and linking Japan and the rest of the world, marketing and technology, and the present withthe future. We established DG to be a company that would create contexts useful for theworld. And, indeed, DG has built a solid track record of constantly being at the cutting edgeof Internet development, and taking on “first-in-Japan” projects. We are proud that thehistory of DG is the history of the Internet in Japan.
Looking to the future, we will remain steadfast in our efforts to add new pages to the historyof the Internet by creating new services that contribute to society. We aim to accomplish
much and welcome anticipation of our results.

DIGITAL GARAGE ANNUAL REPORT

17

BUSINESS MODEL

INCUBATION MODEL

DIGITAL GARAGE’S BUSINESS MODEL

THE DIGITAL GARAGE GROUP’S THREE EARNINGS BASESThe Digital Garage Group, with its IT (Information Technology), MT (Marketing Technology), and
FT (Financial Technology), has created new contexts by connecting phenomena in different fields.
Amid the conflation of the real and cyber worlds, and relentless economic globalization, newcontexts are the foundation for the creation of next-generation value. We firmly believe thatconcepts that go unnoticed at first can, in the right context, become central to people’s lives.

IT

INFORMATIONTECHNOLOGY

DG has three earnings bases. We refer to two—the Financial Technology Segment providing
Internet and convenience store payment systems and the Marketing Technology Segment
engaging in web advertising and product promotion—as our Enabling Platform.
Underpinned by the Enabling Platform, our third earnings base—the Incubation Technology
Segment investing in and nurturing venture companies throughout the world—has funded
companies such as Kakaku.com and Twitter. This aspect of our business model is unique to DG.
Digital Garage aims to continue contributing to society with stable earnings from its advertisingand payment based Enabling Platform, and investment and nurturing of companies that develop
and provide convenient, practical services.

1

PORTALSEARCH

2

3

E-COMMERCE
DESTINATION SITE

SOCIAL MEDIA

1995–2000

2000–

2008–

Advertising

MT

18

FT

MARKETING

FINANCIALTECHNOLOGYTECHNOLOGYDIGITAL GARAGE ANNUAL REPORT

Payment
環亞智富有限公司

Advertising | Promotion

Big data businesse-Commerce | Online Settlement Platform

Enabling Platform | 2 Earning Bases

DIGITAL GARAGE ANNUAL REPORT

19

IT

INCUBATIONTECHNOLOGY

Creating Internet Business by Nurturing Services thatWill Change the World
Since its very beginning, Digital Garage has been growing businesses by uncovering and nurturing
the latest developments in Internet services. This is in our DNA, which finds its strongest expressionin our Incubation Technology Segment.
DG’s approach to incubating startup companies is to take a progressive approach through its unique
incubation stream. Possibilities for business development know no boundaries, and, through our
network linking Japan, other parts of Asia, and the US, we identify promising startup companies
working to develop next-generation Internet businesses and support them with investment andother types of assistance as they cultivate capabilities for realizing their potential.
DIGITAL GARAGE ANNUAL REPORT21

INCUBATION TECHNOLOGYSEGMENT

Establishing DG’s Own Unique Incubation Ecosystem

FY 2015 Highlights
For FY 2015, the Incubation Segment posted net
sales of 7.45 billion JPY (+1.98 billion JPY, 36.1% YoY)
and operating income of 3.55 billion JPY (+1.90 billion JPY, 115.4% YoY).
Partly with gains from two IPOs in Japan, DG Incubation, Inc., the Group’s venture investment arm,
recorded a major increase in earnings from its venture company investment and incubation business.
The company has invested in Wikia, Inc. (Headquarters: San Francisco, Ca., USA), the operator of the
Wikia community website established by Jimmy
Wales, who is also the founder of the online encyclopedia, Wikipedia. By providing operational support
for the Japanese-language Wikia site, DG Incubation
has also embarked on a content business initiative.

Investment Balance and Investment
Direction Going Forward
During the three years of the previous Midterm
Business Plan, implementation of which began in
FY 2013, DG Incubation made new investments
totaling 2.0–3.0 billion JPY per year and saw IPOs
by four companies—aucfan Co., Ltd.; Media Do Co.,

Business Results (JPY in Millions)

FY 14.6
Net sales

5,475Operatingincome1,645

Income before
income taxes

1,595

FY 15.6

7,454

Ltd.; Bengo4.com, Inc.; and CrowdWorks Inc.—inJapan, and one—Twitter, Inc.—overseas. As a result,
Midterm Business Plan objectives were achieved
and the investment portfolio was expanded andenhanced.
Looking to the future, the global incubation systemestablished over the past three years will be applied
to its fullest to expand and enhance the investment
portfolio mainly with overseas investees. Investment attention will focus on O2O, FinTech, AdTech,next-generation media, medicine, biotechnology,
and other new growth fields.

DIGITAL GARAGE ANNUAL REPORT

Incubation Ecosystem

Global Internet
Startups

3
Monetization

Under the previous Midterm Business Plan, which it
began to execute in July 2013, DG established the
DG Incubation Ecosystem for conducting the entire
incubation cycle—from investment and nurturing ofventure companies, through business and technicalsupport, and monetization—solely with resources from within the DG Group. At the same time, a
network for global application of the DG Incubation
Ecosystem was also constructed.

2

8.6

YoY

9.0

+36.1%

Reinvestment

Business/
technology
support1
Investment/
Nurturing

DG ECOSYSTEM

The core of this global ecosystem is the DG717 incubation center in San Francisco. DG717, as the DG
Group’s US location, is a gateway to Silicon Valley

Portfolio Status
Sector Distribution
Big data
0.8%

Other
16.9%

2.9

Open Network Lab Entry/Adoption
Ad Technology
6.4%
Payment
0.7%

Media
24.0%

2,804 +75.8%
FY 14.6

FY 15.6

Global

Japan

87
73
Entries(Teams)

42

20%+
from
OutsideJapan

Other Countries

57

52 56

64

76

84 80 88
16

68

B2B
42.9%

FY 13.6

22

Moving forward, attention will focus on expanding
the DG Incubation Ecosystem on a global basis andaccelerating the DG Group’s incubation activities.

Incubation Ecosystem Structure

DG Incubation Investment Balance (JPY in Billions)

3,545 +115.4%

that mingles Internet business with content and art,and provides global human resources and companies managing next-generation Internet businesses
with opportunities to succeed and grow.

Commerce
8.3%

2010
Adopted

7

19

61

23

65

2011

2012

2013

2014

2015

4

6

4

5

7

6

7

6

6

6

DIGITAL GARAGE ANNUAL REPORT23

INCUBATION TECHNOLOGY SEGMENT

Flexibly Responding to an Era of Technology Diversifying
with Open Innovation

Envisioning 2020

Establishment of an Organization for Creating New Businesses
DG is moving forward with efforts
to build an organization for not only
investing in outstanding startup
companies but also applying theirtechnologies and services to establish new DG businesses. The Open
Innovation Division, established in
FY 2015, incubates products by new
businesses and investees. And DG
Lab, where operations will soon beunderway, will uncover the foundations of future businesses bydeveloping and testing prototypesof products based on advanced
technologies.

T

AI
SECURITYBIO
DIGITALCURRENCY

VR

Establishment of the Open Network Lab Brand
Since its establishment in the summer of 2010, theOpen Network Lab’s “Seed Accelerator Program”
has nurtured the development of 58 teams composed, in total, of 230 entrepreneurs/engineers fromcountries and regions throughout the world. Amongthe outstanding teams graduating from the OpenNetwork Lab are some of the world’s most innovative startup companies. Examples include: Fablic,Inc., developer of the flea market app, Fril; AnyPerk,
Inc., a provider of employee benefits services forStartups Nurtured by the Open Network Lab

24

DIGITAL GARAGE ANNUAL REPORT

small-and-medium enterprises based in the US; andWHILL Inc., a developer of next-generation wheelchair-based mobility devices.
Moving forward, the Open Network Lab will collaborate with leading incubators from around the world,and expand its network to include Asia and Europe.
Instrumental in this effort will be incubation centersin Tokyo, Kamakura, and San Francisco.

he Incubation Segment has constantly led the
pursuit of the very latest in Internet business.
From the mid-1990s, when attention focused on
portal sites and search engines, to the beginning of
the 2000s, when e-commerce and destination sites
were the latest rage, and today when social media isdominating, Internet business has undergone enormous and extremely varied changes. Throughout
this history of evolution, Digital Garage has excelled
in discovering the exceptionally promising startups
that appear from time to time, and, by investing inand nurturing them, has grown together with them.
This business model has made Digital Garage what it
is today and there are no plans to change it. Indeed,
it is now necessary to further elevate our antenna
for discerning the future of cutting-edge technology. The reason is that the wave of open innovation
unleashed by the Internet is swallowing up not only
the software but also the hardware industry, andsurging toward biotechnology, as well, and technology is rapidly evolving in various fields.
To flexibly respond to such diverse changes in technology, and grow businesses while continuing toincorporate cutting-edge technologies as we havein the past, the range of business fields targeted for

Toward 2020
investment and business development in the Incubation Technology Segment will be expanded.
For its part, the Open Innovation Division will help
investees develop their businesses, while also working
to establish new DG businesses in future growth fields.
To identify the directions in which advanced technology is moving, and uncover the technology seeds
that could become new businesses, DG Lab will belaunched as an R&D unit. DG Lab will engage in collaborative R&D with investees and strategic partners
to establish new businesses mainly in Blockchain
technology, security, artificial intelligence, virtual
reality, and biotechnology. In examining the potential technology seeds, active use will made of theresearch results of the MIT Media Lab, which is headed by Joichi Ito, a Digital Garage co-founder.
DG Lab will test advanced-technology-based business concepts by developing prototypes and releasing them to users, and will then closely consider
prospects for business success. The agile development know-how we have developed to date will be
critical for this process. Business concepts judged to
be promising will be transferred to the Open Innovation Division for full-scale business development.

MT
MARKETINGTECHNOLOGY

Applying Marketing Technology to Design Optimal Content

The Marketing Technology Segment offers advertising and promotion technology and solutions
for targeting individual consumers. In supporting business partners, we apply marketing
technology that is indispensable for its ability to grasp the perspectives of targeted customers.
We draw on One-to-One Marketing, CRM, and Online-to-Offline marketing concepts to present
business partners with solutions that go beyond the simple application of data management
techniques to realize marketing approaches that are characterized by a human touch and respondto the desires of individual customers. The roots of this unique philosophy, unconventional
for an Internet company, trace all the way back to the advertising and marketing company,
From Garage, that would later become Digital Garage.

DIGITAL GARAGE ANNUAL REPORT27

MARKETING TECHNOLOGYSEGMENTA Digital Marketing Company Applying Cutting-Edge Technology

FY 2015 Highlights
For FY 2015, the Marketing Segment reported net
sales of 16.06 billion JPY (+1.24 billion JPY, 8.4% YoY)
and operating income of 1.07 billion JPY (+210 million
JPY, 24.7% YoY).
In 2014, Internet advertising expenditures for theindustry as a whole surpassed the one trillion JPY
mark for the first time, growing 12.1% YoY, to 1.05 trillion JPY. Regarding the “performance-based ads”
(actively managed advertising) DG offers, overall
spending maintained its high rate of expansion,
growing 23.9% YoY, to 510.60 billion JPY.

DG’s Marketing Segment has enjoyed growing business results led by performance-based ads emphasizing ROI stemming from the ability to actively manage
web advertising. In FY 2015, performance-based ad
net sales grew to 10.20 billion JPY, marking a second
consecutive year of 35% annual growth, far exceeding
the industry growth rate. Going forward, the Marketing Segment aims to use its outstanding ad management strengths to establish itself as the number one
performance-based ad agency in Japan.

will strengthen the smartphone-marketing andapp-business areas of its web advertising, the current
growth driver. At the same time, in its real promotion
unit, it will apply its sales promotion know-how andweb advertising expertise, and strengthen its O2O
solution business applying smartphones, which haverisen to prominence in recent years.
Expansion and growth of the data marketing business is the second strategy. The DG Group has linked
media audience data from Kakaku.com, Internet
payment data, advertising data from the Dentsu
Group—a strategic partner—and other types ofbig data, as well. The Marketing Technology Segment aims to develop its DMP (Data Management

B
A
L

1,065 +21.9%

LO

874

ng

Income before
income taxesk1,066 +24.8%

ti

854

Bring DG Group and Dentsu Group data and know-how together
and establish business intelligence operationsac

Operatingincomeke

14,822 16,064 +8.4%

ar

9.5

YoY

10.2

Ⅱ Expansion and growth of the data marketing business

M

Performance-based Ad Net Sales (JPY in Billions)

In addition to expanding the web advertising and mall businesses,
strengthen the app business and O2O solutionsa

DG’s Marketing Technology Segment, working as
a partner for clients and business collaborators, ispursuing the following three growth strategies as it
endeavors to be a digital marketing company applying the latest technical resources.

Ⅲ

at

Net sales

FY 15.6

Ⅲ Global development of each of

the Marketing Technology Segment’s businesses

Ⅰ

Overseas business development together with the IT/FT segments

Ⅱ

Internet Ad Market (JPY in Billions)

Performance-based ads

806.2

Smartphone Ad Market (JPY in Billions)
1,051.9

Other Internet ads

774.7

868.0

938.1

207.3
42%
80.0

FY 14.6

FY 15.6

2010

2011

2012

2013

2014

Source: “Advertising Expenditures in Japan 2014” published by Dentsu Inc.

DIGITAL GARAGE ANNUAL REPORT

Percent of Internet ad expenditures

Avg. Annual Growth
21.8%

232.0 265.7 339.1 412.2 510.6

345.0

Smartphone ad expenditures

Avg. Annual Growth
7.9%

5.6

FY 13.6

28

Growth of the Marketing Technology Segment will be
accelerated by implementing these strategies.

D

FY 14.6

The third strategy is global development of each of
the Marketing Technology Segment’s businesses.
The marketing business being pursued in Japan andthe DG strategic businesses mentioned with regard
to strategies one and two above, in other words, will
be developed at a global level. Indeed, global marketing operations are already in collaborative undertakings with business partners and clients.

Ⅰ Expansion into the digital marketing periphery

G

Marketing Technology Segment’s
Growth Strategy

The first strategy is expansion into the digital marketing periphery. The Marketing Technology Segment

Business Results (JPY in Millions)Platform) business, which makes use of this data, into
a core next-generation earnings source.

Digital Marketing Business Growth Strategies

H
ds
A
th
ed
w
as
ro
-b
G
ce
an
m
or
2O
rf
O
Pe

Within that overall environment, DG’s MarketingTechnology Company advertising and promotion
arm continued to grow on the strength of affiliate
marketing and other types of performance-based
ads, and increased its sales of ads for smartphones.
In addition, putting together its digital marketingknow-how and big-data analysis technology, theMarketing Technology Company began offering support for both inbound and outbound app
businesses.

Fantastic Growth in
Performance-based Ads

33.7
5%
2011

29%

12%
2012

2013

2014

Source: “Smartphone Ad Market” research report published by D2C Inc. andCyber Communications Inc.

DIGITAL GARAGE ANNUAL REPORT29

MARKETING TECHNOLOGY SEGMENT

Full-Scale Development of
the DMP Business
Since April 2014, we have been selling a new advertising product called BIG MINING. Using the DG
Group’s big data, BIG MINING identifies optimal target segments for client companies and then uses
demand side platform (DSP) and other approaches
to distribute ads to the target segments.
In August 2015, we embarked on the second phaseof the DMP business, the provision of BIG MINING
Private services. Working in combination with customer relationship management (CRM), these new
private DMP services use the DG Group’s proprietarydatabase and cutting-edge business intelligence tointegrate and analyze DG’s audience data, membership segment data owned by client companies, andother types of data to offer marketing solutions thatare optimal for client companies.

Smartphone-First Alliances
In support of the “smartphone-first” approach to software and website development, we embarked on two
alliances in FY 2015. The first was a merger with Metaps
Inc. that led to the establishment of Digital Science Lab.
Inc. to pursue business in actively managed advertising via smartphone apps. With its ability to draw on
both DG’s wealth of strategy expertise and know-how
in digital marketing, and Metaps’s global marketing
capabilities and advanced data analysis technology,
Digital Science Lab aims to provide smartphone app
advertising solutions. The second alliance we enteredinto is a capital and operational tie-up with LCO-Creation Singapore Pte. Ltd. Through this alliance, we and
LCO are using app services to distribute LCO’s trove oftravel guide information—approximately 8,000 itemsof content on 55 cities in 31 countries—to users in client membership databases. In addition, applying tools
such as preferential services only users can access attravel destinations, Digital Science Lab will promote
service usage during overseas travel and build an O2O
model for directing customers to local destinations.

30

DIGITAL GARAGE ANNUAL REPORT

Establishing a Solid Presence in Digital Marketing

Envisioning 2020

Data Marketing Business

Data from
Kakaku.com

DGG data

Data ownedby the Dentsu
Group andothersAdvertiser
data

Advertiser
customer data
Behavioral data

Data
scienceperspectiveE

nvisioning the business environment the Marketing Technology Segment will face in 2020,
it is anticipated that new-generation hardware—
smartphones, tablets, wearable computers, IoT,
etc.—will have proliferated and that this will have
led to the elimination of the separation of the realand cyber worlds, and to structural changes in consumer behavior.

Latesttechnology

DSP targeting ads

Work with CRM

2-Phase Business Development

As mobile devices become more sophisticated andless expensive, smart phones and IoT will become
more familiar and adoption rates will accelerate.
This in turn will result in accumulations of enormous
amounts of data. Applying big-data approaches, wewill analyze browsing histories, location data, purchase histories, and other kinds of data, as well, andSmartphone App Ad Solutions

PC

SmartphoneAD

Developed by DG

Smartphone
APP AD

Joint Global Development

LCO Service Regionin

55 cities
31 countries
8,000

content items
LCO Service Region

It is expected that e-commerce and the smartphone-oriented Internet advertising markets will
expand further as smartphones continue to be thecenter of convergence, and that it will become indispensable for company sites (services) to be accessible via apps. Given the anticipated demand formore sophisticated user interfaces and user experiences, we will advance smartphone-first approaches
emphasizing user experience.

Toward 2020
use cutting-edge business intelligence to integrate
and organize results to provide marketing services
a cut above in sophistication.
With the holding of the Tokyo Olympic Games in
2020, and the effects of further globalization, there
will be a need to respond to greater numbers of overseas visitors. We, therefore, will strengthen alliances—including collaborations with companies fromoutside Japan—to offer inbound solutions.
The Marketing Segment’s mission, as the client’s business partner, is to employ all manner of approaches—for example, marketing consulting, web integration,and incubation—to support monetization.
Aiming to become a presence that could be
described as “a general trading company of the Internet,” the Marketing Segment will accelerate investment and alliance activities aimed at strengthening
data marketing, smartphone app development, andglobal business endeavors beyond advertising andpromotion, while also elevating its existing businesses to new levels of sophistication. It will create newvalue in accordance with its vision of 2020 and firmly
establish itself in the field of digital marketing.

FT
FINANCIALTECHNOLOGY

Providing Technology New Businesses Can Rely
on for Growth
FinTech has been in the spotlight recently, but DG has had its finger on the potential of IT-based
financial services since the dawn of the Internet. Our involvement in Japan’s first e-commerce siteand convenience store payment systems attest to our early awareness.
In the present day, our endeavors in web-based financial services are encapsulated in the Financial
Technology Segment. This part of DG’s business draws on the strengths of econtext, Inc., which
spearheaded the development and proliferation of convenience store payment systems, and VeritransInc., an online payment pioneer, to offer an array of services applying not only web-based payment
technology but other aspects of FinTech, as well. The Financial Technology Segment is also gearing
up to actively introduce highly reliable financial services developed in Japan to other parts of Asia.
DIGITAL GARAGE ANNUAL REPORT

33

FINANCIAL TECHNOLOGYSEGMENT

Striving to be Asia’s Leading FinTech Company

For FY 2015, the Payment Segment reported net
sales of 14.57 billion JPY (+1.11 billion JPY, 8.3% YoY)
and operating income of 1.32 billion JPY (+119 million
JPY, 9.9% YoY).
With the BtoC-EC market expanding at an annual
rate of 14.6%, reaching 12.80 trillion JPY in 2014, business conditions have remained favorable.
Within that overall environment, DG subsidiaries
Veritrans Inc. and econtext, Inc.—both of which are
pursuing the payment business in Japan and havebenefited from overall market growth—have continued to post steady gains in the number and value oftransactions handled, and in business performance.
In addition, using their e-commerce payment platforms, they have devoted significant attention todeveloping and offering payment solution packages
for real estate and other non-e-commerce businesses, in which adoption of cashless payment is expected to grow.
In June 2015, Digital Garage, Inc. made econtext Asia
Limited, which had been listed on the Hong Kong
Stock Exchange, into a wholly owned subsidiary as
part of its effort to revamp its investment and acquisition strategy in Asia.

Business Results (JPY in Millions)

Net sales

OperatingincomeIncome before
income taxes

FY 15.6

1,496

1,320
1,335

Partnering with Other Major
Platform Operators
The Payment Segment has built payment environments

YoY

The size of Japan’s electronic payment market was
44 trillion JPY in 2012 and is projected to reach 66
trillion JPY in 2017, growing at an average of 8.4%
annually. Even so, however, cash and other non-electronic payments will still make up a greater percentage of overall consumer purchases. Using ourelectronic payment technology, we are vigorously
working to increase the use of electronic payments.

735.5

User numbers private

FY 15.6

Customers

11.2
7.8

8.5

9.5

2.5%

2.8%

3.1%

8%
6%

6

0

Existing
membermerchants

Electronic Payment Potential

10%
12.8

9

New
membermerchants

Login with user ID
Easy payment with registeredcredit card or e-money

15

3

FY 14.6

Login

E-commerce Market Growth (JPY in Trillions)12-10.7%

Payment*Chosen by member merchants

976.8

+9.9%

ID

37.17 million users (as of 2/15)

More specifically, we work with Kakaku.com, an equity
method affiliate, to provide the Tabelog PAY smartphone-based credit card payment service for use by
the restaurant industry, and with DG Communications,an advertising agency specializing in real estate, tomake the Suma PAY system for rent payments available

817.3

EC merchants

58.00 million users (as of 1/15)

3.9%

4.4%

2010 2011 2012 2013 2014

Source: 2014 e-commerce transaction survey data published by
the Japan Ministry of Economy, Trade and Industry

DIGITAL GARAGE ANNUAL REPORT

Through our partnerships with these services, weare not only offering our customers—e-commerce
merchants—a way to receive payments but alsoenabling the provision of marketing value in the formof communications targeting registered users of theservices mentioned as potential customers.

Providing Value as Customer Traffic and Payment Services

FY 13.6

34

that allow registered users of LINE, Rakuten, Recruit,and other services with large membership bases tosimply enter their membership ID to make credit card
payments for purchases from merchants using a DG
Group payment system.

Development of New Markets

Payment Transaction Value (JPY in Billions)13,454 14,568 +8.3%
1,201

When it acquired Veritrans Inc. in 2012, the DG Group
placed itself among the largest payment platform
operators in Japan. Since then, DG’s payment business has continued to expand together with Japan’s
e-commerce market. For FY 2015, the total value of
payments handled grew to 976.8 billion JPY (+19.5%
YoY), with the number of transactions handled coming to around 200 million.

to the real estate industry. Other services include Ceremony PAY credit card payment and financing packages for covering funeral costs. We are actively seeking
out new electronic payment market expansion opportunities outside of the existing e-commerce market.

Market Size

FY 14.6

Moving toward the Trillion JPY
Mark in Transactions Handled

4%
2%
0%

E-commerce Adoption Rate

FY 2015 Highlights

66 tril.
JPY
44 tril. （2017）
JPY（2012）

Consumer
Spending
Approx. 290
Tril. JPY

Potential = Value of cash and other non-electronic payments
Electronic payment (Credit/debit/prepaid cards, e-money, etc.)
Source: Research by the Japanese Ministry of Internal Affairs and Communications,
Statistics Bureau; Yano Research Institute Ltd.; and Digital Garage, Inc.

DIGITAL GARAGE ANNUAL REPORT

35

FINANCIAL TECHNOLOGY SEGMENT

Transition from Payment Agency toComprehensive FinTech Company

Envisioning 2020

Asian Strategy and Making econtext Asia into a Wholly Owned Subsidiary
Aiming to expand the payment business in Asia,
econtext Asia Limited, a DG consolidated subsidiary,
listed its shares on the Hong Kong Stock Exchange inDecember 2013. econtext ASIA eventually attained adegree of success, making strategic investments andestablishing joint venture companies in Indonesia,
China, India, and Vietnam.
Corporate values in the IT sector in Asia, however,rose at a much higher pace than anticipated, andvaluations and acquisition pricing skyrocketed. With
the added impact of rapid yen depreciation starting
soon after econtext ASIA listed shares, the growth ofthe (JPY denominated) payment business in Japanwas not being properly reflected in consolidated
results stated in Hong Kong dollars.
In response, the DG Group’s Asia strategy and operationof the payment segment were revisited and it wasdetermined that econtext ASIA should be made into
a wholly owned subsidiary, and that business development in Asia should be undertaken as part of the
DG Group’s overall financial and investment strategies exercised with rapid decision-making.
From the perspective of financial strategy, making econtext ASIA into a wholly owned subsidiary eliminates
earnings flows to outside parties, and increases DG’s
net income. It also resulted in the deduction of goodwill(related to the change in ownership percentage) from
capital surplus, reducing equity and increasing ROE.
Looking to the future, the Digital Garage Group iscommitted to continuing to play a role in the growthof e-commerce markets and evolution of FinTech not
only in Asia but throughout the world.

Business Development in Asia

Japan

• Equity ownership 13.89%• Completed investment in Sendo,
a provider of online marketplace ande-wallet services

India
VietnamIndonesia• Est. 2011.
Equity ownership 15.59%• Monthly transaction value:
Approx. 10.0 billion JPY(400% of the previous year level)

36

DIGITAL GARAGE ANNUAL REPORT

he term “cloud computing” appeared in 2006,
and it was only eight months later when thecrowdfunding market hit the 20 billion yen mark inJapan alone. Over the past several years, a stringof new technology words—terms such as “social
media,” “O2O,” and “big data”—have emerged. “FinTech” is one of the latest examples, with BitCoin andBlockchain as more widely recognized manifestations of the technology concept.
The documentation of financial payments is one area
where there are significant possibilities for applying
FinTech. For every payment, transaction evidence—for example, confirmation of the identification oftransaction parties (authentication), plus an invoice,receipt, voucher, transaction agreement, etc.—that
can be tracked in a household budget or reflected incompany financial statements is created. If all of thisevidence could be managed in digital form undercommon rules—something DG has vigorously promoted in industries yet to fully embrace electronic
data management—there could be enormous benefits for business activity. And it is not difficult toimagine that payment and contracting activity, andaccounting, tax, and other matters, as well, would
gradually be integrated.
It could be said that this kind of business activity will
require the integration of all commercial infrastructure. And that implies something very different fromthe current dominant form of FinTech, which is tooffer one-off financial solutions applying IT.

China
Hong KongT• Est. 2012. Equity ownership 23%• With monthly transaction value now up
to 1.6 billion JPY, twice the previous year’slevel, the company has grown into a leader
among local payment service providers.
• Expanding into banking, convenience
store payment, e-wallet, andother services

With regard to personal consumption, in particular,
there is a significant amount of activity that takes

Toward 2020
place before and after payment. An entire purchaseprocess, for example, could involve the search for a
product or service, the making of a reservation, theissuance of a coupon, and then going to a store, making a purchase, and having loyalty points credited ordebited. Marketing businesses have built various business activities around these purchase process stages,
and the application of big data, in particular, is seen as
an essential element. Innovation that will produce thecomprehensive integration mentioned above will takeplace over the coming five years. The infrastructurechanges those innovations lead to will take on global proportions and result in the pursuit of wholly new
businesses that existing financial and payment systems
will be inadequate to serve by ten years down the road.
DG’s Incubation Technology Segment, drawing
on the global deal sources developed through its
investments in well-known innovation ventures—
Twitter, which DG supported as the only strategic
shareholder in Japan and helped to promote, being
one and Facebook another—is seeing a rapid rise in
the number of FinTech investment deals. Working inclose cooperation with some of the most innovative
ventures, in places such as Silicon Valley, and fusing
their cutting-edge financial technology with DG’s
payment services will be key. In the Marketing Technology Segment, which is experiencing significant
activity in data science and O2O business, it will be
critical to view payment as an element of marketing.
The Financial Technology Segment is confident thatthe combination of these group assets will allow it
to play a significant role in the coming five years oftechnical evolution and the social change expected
to have emerged ten years from now.

MI

Incubating New Media Companies
by Collaborating with
the Kakaku.com Group,
Now One of Japan’s Leading
Media Enterprises
The newly established Media Incubation
Segment will create new added value thatleverages DG’s three existing business segments.
Against a background of dramatic change fromdevelopments in areas such as cloud computing,
IoT, and AI, the Media Incubation Segment will
incubate media companies that will play
instrumental roles in the next generation. Key tothis effort will be collaboration with the
Kakaku.com Group and the introduction of
cutting-edge technologies.

MEDIA
INCUBATIONKAORU HAYASHIMINORU TANAKA

Chairman of the Board, Kakaku.com, Inc.

Representative Director and President,
Kakaku.com, Inc.

Jun 2003

Named Chairman of the Board, Kakaku.com, Inc.

Jun 2006

Named Representative Director, President, Kakaku.com, Inc.

Jul

Named Representative Chairman, Kakaku.com, Inc.

Apr 2003

Named Director and CFO, Kakaku.com, Inc.

Established Digital Garage, Inc., named Representative Director

Sep 2001

Joined Digital Garage, Inc.

2002

Aug 1995

06 GROUP BUSINESS ACTIVITIESINCUBATION TECHNOLOGY SEGMENT

DGUS

DG Incubation, Inc.

Consolidated
subsidiary

As the investment arm of the Digital Garage Group, DG Incubation
supports Internet entrepreneurs throughout the world. Targetingstartup companies that can be expected to give rise to synergies
with the DG Group’s various businesses, DG Incubation, going
beyond simple investment, focuses on being an incubator thatengages in collaborative business creation.

Open Network Lab, Inc.

Consolidated
subsidiary

Open Network Lab was established in April 2010 for the purposeof cultivating startups that build world-class products. Through its
Seed Accelerator Program, Open Network Lab has already nurtured
and supported several dozen startups.

Consolidated
subsidiary

Digital Garage US is the DG Group’s US-based global strategy headquarters. It operates the DG717 incubation center established in
the heart of San Francisco in 2013, supporting entrepreneurs andengineers from around the world.

Digital Garage US, Inc.

Neo Innovation, Inc.

Consolidated
subsidiary

Neo Innovation engages in software development support basedon the agile development approach and nurtures promising startup
companies. Using agile development, Neo Innovation provides optimal services characterized by flexible responses to client demands
and business environment changes.

DK Gate, Inc.

Consolidated
subsidiary

A joint venture of Digital Garage and Kodansha Ltd., the purposeof DK Gate is to make strategic investments in content businesses.
DK Gate focuses on identifying and nurturing companies pursuingnext-generation content businesses throughout the world.

New Context Services, Inc.

Consolidated
subsidiary

New Context Services provides security systems for all manner ofservices, including infrastructure, for daily life.

Wikia Japan

Affiliate

Wikia Japan is the Japan-based arm of Wikia, a social community
platform shaped by users.

Dentsu ScienceJam Inc.

Affiliate

Dentsu ScienceJam commercializes scientific research results.

FINANCIAL TECHNOLOGY SEGMENT
Consolidated
subsidiary

econtext ASIA acts as a headquarters for development of paymentbusinesses in emerging Asian economies, and identification andinvestment in promising Asian startups.

Consolidated
subsidiary

As a pioneer of convenience-store-based cash payment, econtext
provides online payment services for e-commerce businesses, ofwhich it now counts over 50,000 as clients. While continuing togrow its payment business in Japan, econtext has its sights set on
promoting the use of payment platforms that will expand e-commerce in other parts of Asia.

Veritrans Inc.

Consolidated
subsidiary

Since its establishment in 1997, Veritrans has provided a credit card
payment system incorporating the latest security technology inthe US, and been a leader in the payment aspect of e-commercein Japan. Going forward, Veritrans will focus on developing, andintroducing credit card payment systems, in major markets where
electronic payment has yet to be adopted.

PT. MidtransAffiliate

PT. Midtrans provides e-commerce infrastructure services, focusing
on payment services for the Indonesian market.

econtext ASIA Limited

econtext Inc.

40

DIGITAL GARAGE ANNUAL REPORTMARKETING TECHNOLOGY SEGMENT

Company

The Marketing Technology Company supports client businesses
with Online-to-Offline strategies and Web marketing recommendations. Going beyond the expansion of existing businesses, theMarketing Technology Company, as the client’s ultimate business
partner, applies the Digital Garage Group’s accumulated know-how
and audience data to deliver optimal solutions.

BI.Garage, Inc.

Consolidated
subsidiary

BI.Garage—based on the philosophy that data creates new marketing context—combines, processes, and analyzes payment data
accumulated by the Digital Garage Group, purchase behavior data
owned by Kakaku.com, and advertising-related data of the Dentsu
Group—a major DG shareholder—to optimize customer communications for company marketing activities.

NaviPlus Co., Ltd.

Consolidated
subsidiary

NaviPlus aims to enhance website profitability by collecting andanalyzing data—user behavior data, product content data, user
segmentation data, etc.—and using the results to offer marketing
solution tools that optimize website content and navigation.

Digital Science Lab. Inc.

Affiliate

Applying Digital Garage’s digital marketing know-how and the global marketing and data analysis capabilities of Metaps Inc., Digital
Science Lab engages in business based on smartphone app ads.

LCO-Creation Singapore
Pte. Ltd.

Affiliate

LCO-Creation Singapore offers services consolidating informationand tools international travelers need, and provides companies
with mobile solutions centered on OEM development and marketing systems.

Digital Garage MarketingTechnology Company

MEDIA INCUBATION SEGMENT
Kakaku.com, Inc.

Affiliate

Kakaku.com operates a price comparison site (kakaku.com) and a
restaurant review and advertising site (tabelog.com).

DIGITAL GARAGE ANNUAL REPORT

41

07 FEATURE

From the construction of the first personal homepage
in Japan, through to today, Digital Garage has constantly been at the forefront of Internet business.
Its “first-in-Japan” accomplishments—including
an e-commerce business established to sell CDs
and a convenience store payment business created together with the major Japanese convenience
store operator Lawson, Inc.—are numerous.

capitalizing on that insight for business success.
Leading the company’s business model are DG’s
co-founders, Joichi Ito and Kaoru Hayashi.

DG has always been a step ahead of the times andthat posture is clearly evident in its investment
and incubation businesses, as well. When searchengines were in the limelight in the mid-90s, DG
invested in Infoseek, the leader in the field, andestablished that company’s Japanese unit. And
when attention had shifted to destination sites in
2002, DG invested in Kakaku.com right around thetime of its founding and supported its development. Today, with a total of over 100 million uniqueusers for its Kakaku.com and tabelog.com websites,
Kakaku.com is a major media company.

Data and Artificial Intelligence Holdthe Keys

When the era of social media arrived with the boomin blogging, DG was among the first to recognize
the potential of Twitter, Inc. Along with investingin the company in 2008, DG began to support theestablishment of Twitter’s operations in Japan. And
now, as a regular mode of communication, Twitter
has firmly established itself in our daily lives.
DG has a strong track record of recognizing Internet business development paths early on and

Co-Founders Discuss

Below, the two DG co-founders discuss their ideason the future of Internet business and Digital Garage.

Hayashi: As technical evolution becomes more torrid
and diverse, it will become even more important tokeenly sense changes and steer businesses in new
directions. For its part, Digital Garage is planningto work with Kakaku.com to set up an R&D system
for uncovering the seeds of technologies that canunderpin future businesses. What are you looking
at as technologies that could become important
between now and 2020?
Ito: I think probably data and artificial intelligence.
IoT has already become a part of the vernacular,
but when software and hardware are melded andcountless objects become connected to the Internet, enormous amounts of data will be exchanged.
Biotechnology, too, will rapidly develop stronger ties
with computer science and dramatically change
medicine. This is something else that will give riseto huge volumes of data. Between now and 2020,

the Near Future for Digital Garage

KAORU JOICHIHAYASHI ITO
President and Group CEO, Digital Garage, Inc.
Chairman of the Board, Kakaku.com, Inc.

42

DIGITAL GARAGE ANNUAL REPORT

Co-Founder and Board Director, Digital Garage, Inc.
Director, MIT Media Lab

DIGITAL GARAGE ANNUAL REPORT

43

07 FEATURE
KAORU HAYASHI x JOICHI ITO

I think artificial intelligence will become important for
efficiently processing big data like this.
Hayashi: Looking at something like image analysis applying deep learning technology, I definitely
get the feeling that something big is in the offing.
But recently I’ve been thinking that contexts usefulfor business won’t be coming out of artificial intelligence. And therein lies the value of Digital Garage,
which has been billing itself as a “context company.”
Ito: Yeah, that’s because artificial intelligence produces value when it is used by people who understandcontexts. Without that, the value just goes to waste.
Hayashi: Regarding the exchange of massive volumes of data, security will take on even greater
importance. In that sense, I think security technology,
too, is facing a paradigm shift.
Ito: Realizing even tighter security may entail theneed to revisit the organization of networks themselves. And the key players in that would likely beobjective research institutions, like the MIT MediaLab, and venture companies. Looking at how theworld is changing, one cannot rely on big security
companies or countries to create security systems.
A certain startup, for example, is thinking abouta network structure that evolves to respond to a

44

DIGITAL GARAGE ANNUAL REPORT

situation in which programs themselves are changed
as a result of an external attack. That startup would
also include an autonomous function that, at the
network level, would isolate a node that is behaving
strangely and cut off its connections to other nodes.
Hayashi: At that level, they’re talking about something resembling cells and immunity. At Digital
Garage, we too see that even greater emphasis
will have to be put on security-related businesses
going forward.

It’s No Longer about Advertising
Hayashi: So, how will marketing change in an era
where big data sets the stage? There is a rapidly
growing shift toward data-driven marketing thatemphasizes actual data, rather than reliance on
experience or intuition.
Ito: Marketing is another thing that will probably
become tied to artificial intelligence. Marketing techniques that use data analysis are already beginningto undergo big changes. Ads by companies like Netflix and Amazon have already achieved sophisticatedtargeting of individuals based on their preferences.
And as these companies have begun to do, we’re

probably heading into a time when it will be an everyday thing for products to be recommended basedon the profiles of individuals.
Hayashi: If things get to the point where we’re presented with only what we actually want, we can’t
really call that advertising anymore, can we. We’ll beapproaching a situation in which the communication is between companies and individual consumers. We’ll be looking at the shift from broad ads tonarrow ads.
Ito: In the extreme, I think we’ll get to where products are manufactured to suit the preferences ofindividual consumers. This is the exact opposite ofbehavioral economics in which people are enticed
to want something they didn’t originally. Thatalgorithms for recommending products will differ
depending on the business model is also interesting. In recommending movies, for example, Amazon
starts with the most popular, while Netflix tends torecommend minor indie titles. Why? Because thelow licensing fees of indie titles means a higher
profit margin. This kind of marketing isn’t possible
unless artificial intelligence and computer science
are specifically designed for it.
Hayashi: We often hear about artificial intelligence
taking people’s jobs, but is there really anything toworry about?

Ito: Regardless of the degree to which artificial intelligence comes into use, there will still be a need forhuman interfaces. For example, when people aresick, they’ll communicate their symptoms, and a
medical artificial intelligence system will diagnose
them and issue a prescription. But rather than having
medications given to us by a computer, wouldn’t it bemore comforting to have a human being at a pharmacy hand them to us with a personal explanationof their use and a few words of encouragement? Inother words, it is possible that artificial intelligence
will be able to play the role of a doctor and provide adiagnosis, but human-to-human communication will
still be relatively important.
Hayashi: There will be a need for artificial intelligencebased on outstanding algorithms, but without data
to go with them, there won’t be any value. In thecase of the DG Group, the data owned by Kakaku.
com will be key.
Ito: I agree. Companies, such as Kakaku.com, that
hold vast amounts of data will gain competitive
strength if they are able to take full advantage ofartificial intelligence. The more data you put into it
the smarter artificial intelligence becomes. Driverless cars are one example. Driving algorithms will bemade based on data on actual driving by people, but,if, for example, data on driving by the average Boston driver is used, the algorithm would be terrible.

DIGITAL GARAGE ANNUAL REPORT

45

07 FEATURE
KAORU HAYASHI x JOICHI ITO

Boston drivers aren’t very well-mannered and things
like cutting in are normal. Japanese drivers, in comparison, allow others to merge into their lanes andthey’re judicious in using the brakes. Creating analgorithm based on their data would result in a good
driverless system. And that in turn would allow us
to look forward to the benefit of fewer traffic jams.
There are still, however, considerable algorithm problems that must be solved. With current systems, forexample, cars will stop even if a “stop” sign handdrawn by child is placed in front of them. People caneasily see the difference, but artificial intelligencehasn’t been designed with that kind of scenario in
mind. In creating driverless cars capable of flexibly
responding to such unexpected conditions there is
still a lot of room for innovation.

Expecting Much from Digital
Currency and Blockchain
Hayashi: So, what’s in store for the future of FinTech?
Digital Garage has long been a player in the paymentbusiness, so we are paying attention to digital currency and technology, like that of Blockchain, for supporting it. We were one of the first to adopt Bitcoin
as a payment vehicle for e-commerce businesses.
And we’ve begun to consider applying Blockchain’s
technology for supporting it.
Ito: I have the very real feeling that the electronic
payment world we were aiming for at a time when
there was nothing but personal computer communications is about to be realized. And of course thekey is the emergence of digital currencies like Bitcoin. What’s great about digital currencies is thatthey go beyond the existing framework of countries
and banks from the very beginning, allowing transactions with people throughout the world. Actually, it’s
the national financial policies that are trying to catchup to the evolution in digital currencies. In that sense
digital currencies are an example of how open innovation is working as it did in the case of the Internet.
Hayashi: For digital currencies and Blockchain, I
feel the same amount of impact there was with theadvent of the Internet.
Ito: Looking back on history of Digital Garage, you
can see that it has expanded its business while riding
the tides of major transitions that had to happen invarious industries as a result of the emergence ofInternet-based advertising and media. In the FinTech
world, the same thing really is about to happen in theareas of digital currencies and Blockchain. And it’s
not just payments, either; the impacts are such that46

DIGITAL GARAGE ANNUAL REPORT

they will change laws and the way contracts are written. In that sense, I think the conditions surrounding
digital currencies are an opportunity just right for
Digital Garage.
Hayashi: Looking to the future, I would like to also
pursue biotechnology to expand our business activities, but I wonder how you see Internet business andbiotechnology relating to one another?
Ito: What’s happening on the frontlines of biotechnology is fusion with IT. Leading biotechnology
researchers are also conversant in computer science. What’s got my attention lately is a platform
company that enables biotechnology experiments
via the cloud. Experiments are done by robots inremote labs. Researchers can do experiments simply
by writing programs on a computer. And the information and tools needed are openly available on theInternet. Results are delivered when the experiments
are finished.
Hayashi: Open innovation will move forward if thatkind of environment becomes commonplace. I wonder what we would have to look forward to fromthat point.
Ito: One thing President Obama has also been talking
about lately is personalized medicine; it would
include things like pharmaceuticals being made tosuit the needs of individual patients, and it would
become a real possibility. Attention would also focus
on medicines for preventing disease. Making suchthings requires massive amounts of data, as well as
advertising and marketing sense.
Hayashi: What are your thoughts on Japan’s future?
Ito: There are some who say they can’t see a future,but I think it’s bright. The other day, I had a chance totalk with junior high school students for a television
program. They were very smart and very energetic.
I think they were much smarter than your typical college student. I talked with them for only short periodof time, but it made me feel good to know that there
are such young people. I, too, went through a period
when I was worried about the future of Japan, but
if a lot of young people like those I met come into
society, I think there’ll be big changes.
Hayashi: I want to make Digital Garage a company
that can be carried forward by people like that.

DIGITAL GARAGE ANNUAL REPORT47

08 CORPORATE GOVERNANCE

Corporate Governance System Underpinning
the Ongoing Growth of the DG Group
Basic Philosophy on Corporate GovernanceFunctions and Roles of Outside Officers

Digital Garage creates contexts that are beneficial for the world. As we do so, we strive to achieve sustainablegrowth and increase our medium-to-long term corporate value by practicing corporate governance thatshareholders, customers, business partners, employees, local communities, and others will see as transparent
and fair, and characterized by rapid, resolute decision-making.

DG’s five outside officers actively express their views and opinions from their positions independent of DG’s
management.

Corporate Governance System Overview
Under Japan’s Companies Act, DG is organized as a company with a board of corporate auditors. DG’s Board of
Directors makes important management decisions and oversees the activities of the directors as they performtheir duties. The individual corporate auditors comprising the Board of Auditors review and check activities
undertaken in fulfillment of duties by directors. For the benefit of rapid decision-making for business activities, meetings of the Management Committee, consisting of full-time directors and other members of senior
management, are convened on a regular basis.

Board of Directors

Board of Auditors

The Board of Directors of Digital Garage, Inc. consists of 10 members, including two outside directors.
In principle, the Board of Directors comes together
for regular, monthly meetings. It also meets at othertimes, as necessary. In FY 2015, the Board of Directors met a total of 17 times. The Board of Directors
makes decisions on important matters set forth inlaws and regulations, the Articles of Incorporation,
and Board of Directors Provisions. It also oversees
the activities of board members as they performtheir duties. Outside directors perform governancefunctions by drawing on their individual expertise,management experience and insight, to oversee
board activities and contribute advice, from an independent perspective.

The Board of Auditors consists of four members,
three of whom are from outside the company. In
accordance with laws and regulations, individual
members of the Board of Auditors perform businessand financial audits. Activities such as the sharing of
information in Board of Auditors meetings promoteorganization and efficiency in audits. Furthermore,members of the Board of Auditors, while collaborating with independent auditors and the Internal Audit
Office, engage in activities, such as attending Boardof Directors and other important internal meetings,
in vigorously and proactively exercising their authority, and performing their roles and duties.

Response to the Implementation of the Corporate Governance CodeJapan’s Corporate Governance Code, which took effect on June 1, 2015, requires listed companies to constructsystems that promote transparent, fair, rapid, and resolute decision-making. It is also intended to promotesound risk-taking by managers, enhance sustainable growth by companies, and increase corporate value.
Respecting the intent and spirit of the Corporate Governance Code, DG has established an internal project
team and embarked on initiatives aimed at enhancing the sophistication of its governance system.
Information on the status of our compliance with the Corporate Governance Code is planned to be reported
to stakeholders as part of the Corporate Governance Report we submit to the Tokyo Stock Exchange.

48

DIGITAL GARAGE ANNUAL REPORT

Kenji Fujiwara

Makoto Sakai

Outside Director

Outside Auditor

Kenji Fujiwara is a former
representative director
and president of Lawson,
Inc. Since 2008, when he
was appointed an outside
director, DG has been benefiting from the wealth ofexperience and breadth ofknowledge he has acquiredin his long career in corporate management.

Makoto Sakai has held important
positions at the Japan Federation of
Bar Associations, as a member of theboards of auditors of listed corporations, and in other capacities as well. His
expert knowledge and wealth of experience are reflected in his participation
as a member of DG’s Board of Auditors.

Emi OmuraOutside Director
Emi Omura is an experienced attorney who, as
the head of the Office ofInternational Affairs at theJapan Federation of Bar
Associations, and in otherpositions, as well, has developed competence in handling international matters.
The management of DG,
which is globalizing its business activities, is benefitingfrom her expert knowledge
and broad experience.

Junji Inoue
Outside Auditor
Junji Inoue has developed a wealthof international business experiencefrom important positions he has heldat companies such as Mitsubishi Corporation. His broad understanding
based on this experience is reflected
in his participation as a member of
DG’s Board of Auditors.

Kohji Makino
Outside Auditor
Kohji Makino has a wealth of experience as a certified public accountant
and consultant. In his role as an outside
auditor, he is contributing his views
and opinions, based on his expertise inaccounting and tax matters.

Digital Garage’s Corporate Governance System in theEyes of a Corporate Auditor
What I see at DG indicates the company is vigorously strengthening its corporate governance system to make the company worthy of even greater trust and promote its
sound development. The Board of Auditors, which includes outside members who areexperts in their respective fields, monitors company management and the company’s
internal control system to determine whether they are functioning properly. Managing
a company within an increasingly diverse and complex society is extremely challenging,and I believe that having both a philosophy of improving the world, and the people to
make that possible, is fundamental to that effort.
Since its founding, DG has pursued business activities with the goal of being a context
company that makes the world better. Looking to the future, I expect that it will continue
to do so and achieve ongoing growth and development as it boosts its corporate value.

Hitoshi Ushiku
Standing Corporate
Auditor

DIGITAL GARAGE ANNUAL REPORT49

08 CORPORATE GOVERNANCE

Digital Garage Group Risk Management

Personal Information Protection
PolicyIn operating its businesses, DG receives and/or collects personal information from customers, business
partners, employees, etc. DG recognizes the importance of personal information and pays utmost carein protecting it.

Collecting, using and providing
personal information
When collecting personal information, DG will clearlystate the purposes for which it is to be used, employ
only lawful and fair collection practices, and limit theuse of personal information to stated purposes.
In addition, DG will not collect, use, or provide
personal information concerning race, ethnicity,
family line, social standing, birthplace, permanent
residence, religion, political views, labor union membership, or sexual orientation.
Moreover, DG will not provide personal information to any third party without the express consent
of the individuals whose information would be provided. DG, however, may submit such informationin cases where DG receives an order to submit personal information in accordance with a law (in cases
where DG is ordered by a court, Public Prosecutors
Office, the police, or other legal authority to submit
information customers have provided, ID registration
content, and/or registration profile).
For cases not addressed above, DG will inform
individuals of the pertinent details concerning personal information collected, used, or provided in connection with DG’s provision of services.
To prevent personal information from being used
for other than stated purposes, DG will create internal rules on the handling of personal information,
distribute the rules to all officers, employees, temporary staff, etc. (hereinafter “Employees”) and handle
personal information accordingly.

Compliance with laws/
Security management
DG complies with laws, guidelines and other standards established by the Government of Japan.
To ensure the accuracy and security of personal information, DG implements safety measures toprotect personal information, and works to prevent
leakage, and loss of, or damage to, personal information. DG also periodically reviews its security measures and makes revisions as necessary. In cases
where personal information handling is outsourced,

50

DIGITAL GARAGE ANNUAL REPORT

DG will select a contractor who meets the standards
regarding personal information protection, conclude
an entrustment agreement for personal information protection with the contractor, and supervise
and direct the contractor in its handling of personal
information.

Basic Information Security Policy
DG believes that achieving sustained growth requiresthat each employee contribute to the betterment ofsociety by creating new business opportunities. We
recognize the role our information systems (i.e., data,
computers and networks) play toward that end andstrive to make the most of them as information assets.
DG recognizes the value and importance of its information assets and believes maintaining the completeness, confidentiality and availability of information by
establishing effective security measures is critical forclients, business partners and ourselves.
To offer better services and foster trust, every
employee must fully recognize and understand theimportance of information security in protecting ourassets, brand image and the trust that our clients andbusiness partners have in us.
Against this backdrop, we established a basic
information security policy to properly secure ourinformation assets against various threats. The policy expresses our commitment to the development
and maintenance of an information security systemand to ongoing efforts to improve its management
and operation. DG employees strictly adhere to all
information security provisions and demonstrate
responsible conduct in compliance with the protocols of applicable regulations, business practices andour code of conduct, as well as contractual security
obligations.

Code of Conduct
1. Promote employee understanding of the importance of information assets and the security
thereof and ensure that appropriate usage of
information assets, facilities and equipment isunderstood.
2. Establish objectives for maintaining an appropriate
level of information security, and take action that
results in their clear achievement.
3. Establish internal standards for risk assessments
and conduct risk assessments based on them toidentify essential information assets and related
threats and vulnerabilities. Furthermore, takeappropriate risk management measures in orderto protect information assets from unauthorizedaccess, loss, damage, falsification, leakage, andother security events and accidents.
4. In the event that a security problem arises, takeswift action to investigate the cause; implement
corrective measures to minimize the impact andtake steps to prevent a recurrence; and maintainor improve security.
5. If an employee breaches applicable laws, the basic
information security policy, related security rules
or internal regulations, take disciplinary action inaccordance with company regulations (including
secondary regulations).
6. Continuously conduct activities related to thebasic information security policy, establish a management system capable of addressing new andongoing threats, and engage in ongoing improvement of the basic information security policy
through continuous review.

Disclosure Policy
Emphasizing transparency, fairness, and continuity, DG endeavors to provide information in a timely
manner to all of its shareholders, investors and otherstakeholders.
Our basic policy is to disclose information incompliance with the regulations on timely disclosure established under the Financial Instruments andExchange Act and by Tokyo Stock Exchange, Inc. DG
also strives to disclose as proactively and quickly as
possible even information to which the timely disclosure regulations do not apply, if we consider it usefulin promoting understanding of DG.

Information disclosure methods

settlement date and extending to the financial statement release date as a “silent period.” During thisperiod, we refrain from answering or commenting on
any question concerning business results. Nevertheless, during the silent period we will disclose events
that are related to our business results, if they arecovered by the timely disclosure regulations.

General Policy on Addressing
Antisocial Forces
DG stipulates how its employees and other personnel
shall address antisocial forces, or racketeers, definedin Article 8 of the “Compliance Program.”
Article 8 (Prohibition on the Provision of Financial Benefit to Antisocial Forces)
All employees shall reject all ties with antisocial forces and organizations that pose a threat to the orderor safety of civil society and shall not facilitate theiractivities.
To fulfill the above imperative, DG hereby
declares its “General Policy on Addressing Antisocial
Forces” as follows:
1. Undue claims from antisocial forces shall be
responded to by the entire organization, led by
the President and Group CEO.
2. The safety of any employee responding to undue
claims from antisocial forces shall be ensured.
3. In preparation for the receipt of any undue claims
from antisocial forces, close ties shall be developed with expert external institutions in the courseof pursuing regular business activities.
4. No business or other relationships shall be maintained with antisocial forces and any undue claimsby antisocial forces shall be refused.

Information to which the timely disclosure regulations apply is disclosed in accordance with said
regulations through the Timely Disclosure network(TD-NET). Additionally, information to which theregulations, etc., do not apply is disclosed throughsuch methods as the distribution of materials or
through publication on our website.

5. Undue claims by antisocial forces shall be responded to with both civil and criminal legal action.

Silent period

7. No financial support shall be given to antisocial
forces in any manner.

6. No secret deals shall be arranged in any way forthe purpose of concealment, even if undue claimsby antisocial forces are based on improprieties
involving our business or employees.

To prevent leaks of settlement information and toensure information disclosure fairness, DG designates the period starting with the day following the

DIGITAL GARAGE ANNUAL REPORT51

HISTORY
of Digital Garage
1995

2000

The history of Digital Garage, which created Japan’s very first personal homepage in 1994, is one ofconstantly discerning the future and growing together with the Internet. DG has localized
crawler-based search services for Japan and created e-commerce sites. It offers payment platforms,
has turned blog search into a business, and combined CGM and advertising. DG provides support forthe operation of social media and is promoting the growth of a settlement platform in Asia.
The experience and track record it has developed working with cutting-edge Internet businesses are
the strengths of the DG Group, and the source of the high-value-added contexts it offers.

2005

2005

2011

2011

2012

2013

Established the OpenNetwork Lab to support
next-generation startups.

Made VeriTrans Inc. into a
consolidated subsidiarya n d ultim ately J a pa n ’s
largest payment platform.

Established the incubation
center, DG717, in the heartof San Francisco.

DGUS
Set up Japan’s first personal
homepage, titled “Tomigaya,” and established Digital
Garage to plan and create
Internet-based advertising.

Listed Digital Garage on
the OTC (now the Tokyo
Stock Exchange JASDAQ).

E sta blish ed D G U S a s abase of operations for the
DG Group in the US andaccelerated US incubation
activities.

2003

2008

2012

2013

2015

Established econtext, Inc. toprovide payment and othere-commmerce solutions.

Listed Kakaku.com on theTokyo Stock Exchange Mothers Index.

Entered into a businessalliance with Twitter, Inc.
and provided localization
support.

Entered into a capital andbusiness tie-up with Dentsu, and began collaborating in all aspects of digitalmarketing.

Embarked on full-fledged
big data operations via BI
Garage, a joint venture with
the Dentsu Group.

Entered into a capital andbusiness tie-up with Kodansha, and began collaboratingon the global development,
and investment in and nurturing, of digital content.

2000

–2000
PORTAL SEARCH

Established an Internet advertising businesswith a high-traffic portal site and crawler-based
search engine at its core.

52

Established DG Incubation
to invest in and provide
business support to venturecompanies.

2000

1995

Key Web
Milestones

Made DG&Ibex, a company
providing advertising andpromotion services fusing real space and cyberspace, into a consolidated
subsidiary.

E-COMMERCE
DESTINATION SITE

Established an operational base by investing in
Kakaku.com, a company developing a settlement
service (targeting e-commerce sites) and a
price-comparison site.

2008

SOCIAL MEDIA

Expanded advertising/marketing businesses for a new era ofusers utilizing blogs, Twittter, and other forms of social media.

HybridSolution

2015

NEXT...

Accelerating investment in next-generation
technologies and global incubation.

Social Media
Incubator

Open Innovation

1995

1998

2000

2007

2008

2011

2014

Microsoft introduces
Windows 95

Number of Internet
users in Japansurpasses 10 million

Google introduces
a Japanese-language
search service

Apple introduces
the iPhone

Number of fiber-optic service
users exceeds numberof ADSL users in Japan

Number of SNS users inJapan exceeds 40 million

Number of smartphone
subscribers exceeds number offeature phone subscribers

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

53

CONTEXTNAOHIKO IWAIKEIZO ODORIYASUYUKI ROKUYATAKAORU HAYASHIJOICHI ITO

MAKOTO SODA

MASASHI TANAKAHIROKI YOKOTA

Board Director

Board Director

Board Director

President and Group CEO

Board Director and Co-Founder

Board Director

Board Director

Board Director

Apr 1 9 7 7Joined Dentsu Inc.

Apr 2000

Joined Faith, Inc.

Dec 1 9 9 5

Digital Garage, Inc. Director

Oct 2007

Joined Digital Garage, Inc.

Jun 2005

Faith, Inc. Director

Mar 2 0 1 1

Sep 2008

Sogei Co., Ltd. (now DG
Communications Co., Ltd.)
Director

Sep 2010

Digital Garage, Inc. Director

DG Incubation, Inc.
Representative Director andPresident

Sep 2 0 1 2

Sep 2009

Digital Garage, Inc. Director

Sep 2 0 1 2

Digital Garage, Inc. Director
In charge of the Marketing
Segment(now the MarketingTechnology Segment)

Digital Garage, Inc. Director
In charge of the Payment
Segment(now the Financial
Technology Segment)

Oct 2 01 3

Econtext, Inc.
Representative Director andPresident

Sep 2 0 1 2

Jul

2 01 3

Jun 2 01 5

Apr 1 9 8 3

From Garage, Inc. Representative
Director

Aug 1 9 9 5Aug 1 9 9 5Founded Digital Garage, Inc. andbecame Representative Director

Digital Garage, Inc. Director andVice President
In charge of the Incubation
Segment(now the Incubation
Technology Segment)

Jun 2003

Kakaku.com, Inc. Representative
Director and Chairman

Nov 2004

Digital Garage, Inc.
Representative Director,
President and Group CEO

Jun 2 01 3

Digital Garage US, Inc. Director

Jun 2009

DG Incubation, Inc.
Representative Director

DK Gate, Inc. Representative
Director and President

Jul

2011

Jun 2 0 1 2

54

DIGITAL GARAGE ANNUAL REPORT

Digital Garage US, Inc. Director
Monex Group, Inc. Director

Founded Digital Garage, Inc. andbecame Representative Director

Jun 1994

Jun 1999

Digital Garage, Inc. Director

Jun 1 9 97

Apr 2 0 1 1

MIT Media Lab Director

Joined Daiwa Institute of
Research Ltd.

Jun 2 0 1 2

The New York Times Company
Director

Apr 2000

Joined Monex Securities Inc.

Mar 2007

Joined Digital Garage, Inc. as
Executive Officer in charge of
the Corporate Strategy DivisionSep 2009

Digital Garage, Inc. Director,
Head of the Group CEO OfficeSony Corporation Director

Jan

2012

Joined Dresdner Kleinwort
Benson Securities, Ltd.

Digital Garage, Inc. Director
In charge of the Corporate
Strategy Division

Aug 2001

Joined Digital Garage, Inc.

Apr 1984

Joined Hakuhodo Inc.

Jul

2006

DG&Ibex Company (now MarketingTechnology Company) Director

Apr 2014

Jan

2011

Digital Garage, Inc. Senior Operating
Officer
DG&Ibex Company (now MarketingTechnology Company) Executive
Vice President

Hakuhodo Inc. Overseas
Marketing Services Executive
Director

Apr 2 01 5

Joined Digital Garage, Inc. as
Senior Operating Officer
Open Innovation Division
Manager

Aug 2 01 5

Digital Garage US, Inc.
Director

Sep 2 01 5

Digital Garage, Inc. Director
Open Innovation Division
Manager

Sep 2 0 1 2

Digital Garage, Inc. Director,
Corporate Strategy Division Manager
DG&Ibex Company (now MarketingTechnology Company) Executive
Vice President

DIGITAL GARAGE ANNUAL REPORT

55

09 CORPORATE INFORMATION

15-Year Summary of Consolidated Business Performance Indicators(JPY in Millions)

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

2,669

2,783

3,520

6,217

7,846

12,476

17,33839,582

34,4998,346

11,067

14,90327,96433,751

38,087For the Year:Net sales
Operating income

273

0

-285

-319

442

1,703

1,613

-172

981

-960

135

1,621

1,322

2,608

4,810

Ordinary income

160

351

-202

-210

108

1,505

2,475

-375

537

-457

972

2,708

3,078

4,442

7,610

47

103

-217

380

633

338

588

-2,4305,450-2,207

901

2,106

2,715

2,847

5,081

Total assets

2,728

4,041

6,747

14,742

24,25927,77442,40740,05730,275

19,706

20,42149,33856,01071,00986,504

Net assets

2,361

2,726

2,667

3,576

9,330

10,668

11,743

9,716

11,989

8,829

9,895

20,47627,25836,48929,074

Cash flows from operating activities

20

212

558

-1,647

2,295

1,898

779

-1,0491,963-5,163

131

2,542

3,211

-34

5,040

Cash flows from investing activities-1,011-186-776-3,795-165-3,305

3,355

486

7,346

1,233

-165

-9,411

1,514-5,155508

Cash flows from financial activities

919

717

1,065

6,850

573

2,806

-203

1

-5,152-3,294-568

15,273-1,816

11,2601,390

Cash and cash equivalents at end of year

373

1,116

1,963

3,369

6,072

7,471

11,50910,951

15,100

7,875

7,271

15,75819,09025,18334,077

Net income

At Year-End:

Cash Flows:

Share Price

Listed on
Dec. 14,
2000

56

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT57

09 CORPORATE INFORMATION

Consolidated Balance Sheet

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

1,741,390

2,183,935

4,311,466

8,114,867

13,600,776

17,523,376

31,918,644

29,855,003

24,000,824

14,208,493

14,345,384

28,005,334

33,837,184

45,455,259

57,752,254

Cash and deposits

587,947

1,218,886

2,065,860

4,622,335

6,815,665

7,575,614

13,499,476

9,898,492

13,133,095

4,799,958

4,784,822

12,308,492

15,329,272

24,294,997

30,956,199

Notes and accounts receivable

785,030

591,330

1,202,784

1,298,787

2,069,288

2,662,547

9,546,686

9,379,461

2,850,681

2,238,506

1,466,303

2,479,801

2,688,570

3,658,527

3,824,046

-

-

-

-

-

-

-

4,431,418

2,048,488

3,155,340

2,501,270

3,404,967

3,768,127

889,164

3,120,279

300,115

-

-

-

-

4,528,656

3,769,005

1,730,527

89,601

323,526

912,055

1,904,227

2,641,416

8,063,977

8,208,111--

719,381

1,623,103

4,021,563

2,542,621

3,100,575

3,591,293

5,449,164

3,413,224

4,351,131

7,577,965

9,037,107

8,596,697

11,646,489

68,296

373,717

323,439

570,640694,257

213,937

2,002,898

823,809429,791

277,935

329,801

329,881372,689-48,106-2,873

987,071

1,857,842

2,436,073

6,356,952

10,631,226

10,250,995

10,489,024

10,202,495

6,274,550

5,497,837

6,075,875

21,333,298

22,173,453

25,554,459

28,752,062

Current assets

Money held in trust
Operational investment securities
Receivables
Other

Fixed assets
Tangible fixed assets

153,123

123,842

122,822

140,385

233,346

300,362360,233

408,865

56,175429,995

377,434

912,588

2,038,649

2,158,533

2,250,655

Intangible assets

318,837

1,072,234

759,556

612,916

6,146,134

6,119,636

7,543,793

6,910,388

3,899,061

2,248,964

2,102,677

13,080,115

11,093,751

8,587,910

7,574,332

Software225,418

341,459258,317

215,770

242,008790,217880,047

936,407

293,368

283,763316,695

959,106

1,106,943

1,210,198

1,314,926

Goodwill-

631,413491,263

388,098

5,715,201

5,186,799

6,645,839

5,956,003

3,590,203

1,945,975

1,768,577

12,104,667

9,968,182

7,354,590

6,237,218

93,41862,454

9,975

9,048

188,924

142,619

17,906

17,977

15,48919,225

17,404

16,341

18,624

23,121

22,187

Other

515,109661,765

1,553,694

5,873,830

4,279,536

3,830,996

2,584,997

2,883,241

2,319,312

2,818,877

3,595,763

7,340,594

9,041,052

14,808,016

18,927,074

Investment securities

416,186

562,087

1,337,814

4,716,975

3,843,897

3,168,387

536,250

1,192,646

2,081,976

2,504,345

3,305,577

4,299,840

5,521,160

10,644,406

14,220,454

Other

98,922

99,677

215,879

1,156,855

435,638

662,6072,048,746

1,690,593

237,336

314,531

290,184

3,040,753

3,519,890

4,163,609

4,706,619

2,728,461

4,041,777

6,747,540

14,742,000

24,259,792

27,774,372

42,407,669

40,057,499

30,275,374

19,706,331

20,421,259

49,338,633

56,010,638

71,009,719

86,504,317

360,825

1,108,889

3,613,003

6,469,452

14,379,868

13,784,419

26,384,002

27,635,747

17,360,950

9,941,255

9,933,415

28,505,805

21,801,952

25,461,162

50,623,812

184,524

156,109454,018

118,454

1,123,359

1,238,963

10,640,033

7,249,152

1,237,925

1,021,255

540,603

1,154,325

1,232,135

1,629,586

2,039,224
3,690,686

Investments and other assets

Total assets

Current liabilities
Notes and accounts payable
Short-term borrowing-

519,115

1,037,750

272,000

1,365,560

1,541,770

5,870,032

8,210,000

4,947,360

2,809,368

2,519,054

10,740,008

305,159

3,690,686

Income taxes payable

40,815292,239

74,970430,126

248,409819,125

893,610

1,045,775

3,775,553

4,772

46,371

740,945

810,592

1,241,682

2,147,718--

1,911,330

4,907,484

10,237,863

9,542,633

6,399,144

9,143,489

6,691,237

5,743,393

6,168,961

14,956,391

18,229,792

16,434,414

20,998,870

135,485

141,424

134,933

741,386

1,404,675

641,925

2,581,180

1,987,328

708,873362,465

658,424

914,134

1,224,272

2,464,791

1,904,138

Fixed liabilities

6,811

207,072

467,293

4,696,416

549,548

3,321,915

4,279,982

2,704,897

925,294

935,502592,338

355,896

6,950,157

9,058,799

6,805,977

Bonds payable--

300,000

3,956,000

220,000

420,000

816,000

440,000

-

-

-

-

-

-

-

Long-term borrowing-

191,560

82,000300,000

281,770

2,870,000

2,630,000

1,630,000

845,740

670,370

351,316

183,308

6,799,916

8,841,160

5,546,550

Deposits
Other

-

6,777

35,610-748-

146,169

69,73941,1395,980

30,991-

20,95643,066938,197

6,811

8,734

49,682

440,415

47,02831,915

687,812565,156

38,413

259,151

210,030

172,587

129,284

174,572

321,229

367,636

1,315,961

4,080,297

11,165,868

14,929,417

17,106,335

30,663,984

30,340,644

18,286,244

10,876,757

10,525,753

28,861,701

28,752,110

34,519,961

57,429,790

2,293,958

2,406,183

2,235,020

2,801,037

6,646,665

7,041,383

7,452,752

5,066,929

11,924,984

8,785,078

9,759,174

20,155,922

25,279,508

27,762,568

24,650,134

Common stock

1,251,119

1,255,221

1,297,663

1,390,465

1,769,763

1,798,006

1,809,412

1,831,833

1,835,604

1,835,604

1,872,120

6,017,283

7,330,041

7,399,002

7,426,431

Capital surplus

1,341,856

1,346,040

1,389,331

1,483,213

4,303,537

4,331,780

4,152,370

4,174,790

5,521,655

5,521,655

5,558,171

9,703,334

11,016,091

10,817,448

2,854,445-299,017-195,078-451,974-71,337

575,027

913,529

1,492,890-937,772

4,637,565

1,497,658

2,398,722

4,505,145

7,003,215

9,615,957

14,439,097

-

-

-

-1,304-1,662-1,932-1,921-1,921-69,840-69,840-69,840-69,840-69,840-69,840-69,840

Deferred tax liabilities
Other

Total liabilities

Shareholders' equity

Retained earnings
Treasury stock-

137,033

115,209-168,010

37,121

206,801-157,856-275,894

64,145-17,072

64,866

115,195

426,196

2,679,609

4,002,546

Valuation difference on available-for-sale securities-

137,033

115,209-168,010

37,121

206,801-157,856-275,894

64,145-17,072

64,866-76,380

31,5342,193,931

2,585,843

Foreign currency translation adjustment

-

-

-

-

-

-

-

-

-

-

-

191,575

394,662

485,678

1,416,702

66,866

182,600

317,012943,105

2,646,587

3,419,852

4,445,589

4,921,748

061,567

71,464

174,223

1,468,302

5,906,458

126,215

-

-

-

-

-

-

3,198

4,071

-

-

-

31,58984,520141,121295,632

Net assets

2,360,825

2,725,816

2,667,243

3,576,132

9,330,375

10,668,036

11,743,684

9,716,854

11,989,130

8,829,573

9,895,505

20,476,931

27,258,528

36,489,758

29,074,527

Liabilities/Net assets

2,728,461

4,041,777

6,747,540

14,742,000

24,259,792

27,774,372

42,407,669

40,057,499

30,275,374

19,706,331

20,421,259

49,338,633

56,010,638

71,009,719

86,504,317

Accumulated other comprehensive income

Minority interests
Subscription rights to shares

58(JPY in Thousands)

FY01

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

59

09 CORPORATE INFORMATION

Consolidated Statement ofProfit or Loss

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

2,669,598
1,268,976

2,783,428
1,426,081

3,520,266
2,100,179

6,217,588
4,476,502

7,846,467
4,664,452

12,476,240
6,627,105

17,338,744
10,046,843

39,582,609
28,733,316

34,499,015
22,058,007

8,346,753
6,630,196

11,067,388
8,282,406

14,903,810
10,644,889

27,964,798
21,533,032

33,751,615
25,534,895

38,087,485
27,301,795

Gross profit

1,400,622

1,357,347

1,420,087

1,741,086

3,182,014

5,849,135

7,291,900

10,849,293

12,441,007

1,716,557

2,784,982

4,258,921

6,431,765

8,216,720

10,785,690

Selling, general and administrative expenses

1,126,658
158,699
293,156
24,84650,7345,351
1,052
39,88926,066
3,930
38,737
62,14633,14469,871
38,117
280,911

1,357,293
175,474
349,056
40,226
57,1306,566
1,528
41,00937,7184,457
54,132
117,849
37,84980,08044,121
310,088

1,705,519
216,214495,323
55,22883,772
8,014
3,492
72,28940,1738,545
51,621
54,46822,07287,03534,882
129,589
342,794

2,060,608
249,337
565,152
42,251
82,5998,378
3,786
191,462
46,315
10,24097,56051,801
132,500
145,958
23,270134,691
275,300

2,739,111
281,144734,969
42,683
110,146
9,343
6,276
236,615
63,253
34,610141,353
42,94543,452
184,047
19,634279,918
508,713

4,145,136
452,639
1,000,819
44,499146,136
13,9803,253
501,487
80,17459,437200,568
132,927
41,477245,160
27,659526,570668,340

5,665,776
609,457
1,298,472
75,679189,080
21,5803,324
898,629
111,591
84,062
255,679
189,152
49,479302,976
37,883624,056
914,668

11,014,003
768,825
3,345,803
507,689
430,766
117,298
175,023
1,288,417
275,400
106,307413,359
401,61238,783
743,148
52,715
635,492
1,713,357

11,459,640
632,664
3,422,077
626,525
475,456
91,433
169,790
1,105,237
253,853
196,192
763,375
224,547
20,798724,364
66,610627,9322,214,356

2,676,850
247,055
911,033
11,697
113,608
23,2497,345
20,59655,79230,008132,059
95,07939,832
219,368
59,142
249,395
461,5852,649,506
286,244851,643
40,209128,886
21,255
6,539
31,07952,88034,964
137,761
75,49029,643
269,146
66,540177,398
439,816

2,637,322
287,570825,566
77,809128,657
25,691
9,769
39,20884,70358,625
124,298
76,49552,801
274,877
39,475
188,753
343,016

5,109,539
403,233
1,319,714
65,742
162,296
48,76633,141
95,492
157,222
111,028
203,334
291,828
38,337404,458
99,137940,412731,4615,608,698
458,810
1,428,888
85,365
199,662
82,13634,931
190,241
200,714
91,849277,636
241,683
59,256
430,443
107,703756,336
962,9445,975,676
523,807
1,509,062
90,456211,336
101,80752,754
100,650
188,659
128,083
285,901
288,092
79,058433,613
122,926
754,098
1,105,366

273,963
10.3%

53
0.0%

-285,432-8.1%-319,522-5.1%

442,902
5.6%

1,703,998
13.7%

1,613,152
9.3%-172,108-0.4%

981,3672.8%-960,292-11.5%

135,475
1.2%

1,621,598
10.9%

1,322,226
4.7%

2,608,022
7.7%

4,810,014
12.6%

9,383
1,228
6
2,966
5,181
123,276
6,240
85,621
31,413457,680712
36
456,932
106,053
1,583
1,235
97,9805,251

216,946
2,656
260
214,029
134,090
13,55082,71637,821

474,0868,227
436
465,422364,939
49,348
124,567
191,022

272,449
26,493
11,229234,726
606,820
108,695
320,189
177,934

133,157
8,110
128
124,917332,121
131,409
144,579
56,132

1,032,797
15,835
6
1,016,955
170,141
139,396
30,744

142,616
59,407
18,78164,428345,509
201,783
72,14571,579110,191
57,29320,99831,899553,978
222,315
41,571
290,090

616,562
24,464
11,115547,61433,367
113,480
84,303
6,588
22,587925,584
17,647
11,116866,346
30,47488,39043,5606,167
30,27401,215,506
8,647
42,337
1,004,205
112,852
32,32815,136
128,138
49,914
1,989
13,34262,892

2,179,576
14,45843,655
1,361,142
499,344
222,372
38,602
423,160
102,386
50,000127,296
94,68948,7882,307,218
7,557
30,306
1,741,139
143,730
278,675
105,809472,748
88,196
195
189,431
191,602
3,323

3,736,778
18,1436
2,080,806
1,090,982
337,782
209,056
936,466
97,871554,852
275,071
8,041

160,070
6.0%

351,68112.6%-202,576-5.8%-210,374-3.4%

108,532
1.4%

1,505,034
12.1%

2,475,808
14.3%-375,001-0.9%

537,580
1.6%-457,210-5.5%

972,6698.8%

2,708,966
18.2%

3,078,642
11.0%

4,442,492
13.2%

7,610,325
20.0%

29
29
20,299299
20,000
-

5,547
4,734
812
84,951
14,85570,096

236,891
25,651
156,240
55,000159,582
70,021
89,5601,355,148
323,237
1,027,572
4,338
215,426
73,471
141,952

1,437,442
848,226
484,540
104,676
119,180
86
9,305
109,789

7,941
5,012
2,928
61,112
2,045
59,064

236,152
113,747
122,37133
105,623
10,97937,32557,317473,817
15,039417,60241,174435,1035,444
62,500170,135
197,021

16,147,076
106,674
16,031,415
8,986
4,424,801
144,832
1,759,936
787,046
1,732,985

49,12530,337
15,2403,547
1,775,443
4,892
1,435,962
332,607
1,981

58,08946,167206
071,942
9,398
22,157
063,423
20,32342,920180
236,922
3,114
222,529
8,366
2,912

1,304,628
18,603
153,417
1,131,288
1,319
168,213
22,38288,43033,84323,557

630,922374,492
220,955
35,47438,3987,073
376
30,9482,463,041
2,363,553
99,487824,373
27,637
77,109657,61162,014

139,800
5.2%

272,277
9.8%-125,267-3.6%

929,347
15.0%

1,426,794
18.2%

1,451,863
11.6%

2,606,337
15.0%-336,287-0.8%

12,259,855
35.5%-2,183,528-26.2%

958,816
8.7%

2,535,467
17.0%

4,215,057
15.1%

5,035,016
14.9%

9,248,993
24.3%

41,45052,652-1,860265,217-104,339
7,460

101,226-20,507
11,437481,101-19,485
87,094

327,172
152,432
313,952

875,376-290,586
528,572

1,202,403
256,359
558,940

1,560,934-114,718
648,160

5,506,725
575
1,301,660

3,620
3,677

47,856
9,896

409,909
19,134

1,520,208-9,850-11,170

1,919,646-32,641
300,956

3,699,401
155,721
312,270

47,5581.8%

103,9383.7%-217,423-6.1%

380,6366.1%

633,235
8.1%

338,501
2.7%

588,633
3.4%-2,430,663-6.1%

5,450,893
15.8%-2,207,784-26.5%

901,063
8.1%

2,106,422
133.8%

2,715,870
28.9%

2,847,054
4.8%

5,081,600
78.5%

Net sales
Cost of sales

Directors' compensation
Salaries
Bonuses
Legal welfare expenses
Welfare expenses
Retirement benefit expenses
Advertising expenses
Travel and transportation expenses
Taxes and dues
Commission fees
Business consignment expenses
Research and development expenses
Rent expenses
Depreciation
Amortization of goodwill
Other
Operating Income
Operating margin
Non-operating income
Interest income
Dividends income
Investment profit on equity method
Foreign exchange gains
Rent expenses on real estates
Other
Non-operating expenses
Interest expenses
Commission fees
Foreign exchange lossees
Rent cost of real estate
Listed expenses
Investment loss on equity method
Other
Ordinary Income
Ordinary income rate
Extraordinary income
Gain on change in equity
Gain on sales of investment securities
Gain on sales of shares of subsidiaries and associates
Other
Extraordinary loss
Loss on retirement of non-current assets
Loss on liquidation of subsidiaries and associates
Impairment loss
Loss on valuation of investment securities
Other
Income before income taxes
Income before income taxes and net profit rate
Income taxes–current
Income taxes deferred
Minority interests in net income
Net Income
Net profit margin

60(JPY in Thousands)

FY01

DIGITAL GARAGE ANNUAL REPORTDIGITAL GARAGE ANNUAL REPORT

61

09 CORPORATE INFORMATION

Consolidated Statement of
Cash Flows(JPY in Thousands)

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

20,560139,800
40,23441,066
18,453-1,2346,240-2,966
85,621
20,000-151,138
27,426-222,436
28,37229,442

212,838
272,277
45,236271,691
18,453
-748
1,583
1,235
97,980-451,311
221,366
1,467-297,592
93,476275,117558,196-125,267
47,064
219,642
129,589
18,453-2,916
13,55088
82,716-156,240-208,516-764,715-69,794555,540
1,164,254
116,222
1,019,672-1,647,427
929,347
46,09833,356
134,691-8,66349,34875
194,416-323,237-1,027,572-455,554-117,037-491,945-738,838-215,755
385,531-1,605,738

2,295,197
1,426,794
54,952
77,765279,918-37,722108,695-710
320,189-848,226-484,540-126,225-57,533-2,300,834
774,578
3,701,402
7,979
2,896,484

1,898,215
1,451,863
83,579125,773526,570-22,686
131,409-272
144,579
14,317-5,012-632,092
136,667
979,715
135,264-598,324-142,878
2,328,475

779,065
2,606,337
107,371
269,081624,056-32,972
139,396-1,279-63,207-122,371-1,983,860
177,908-282,587-551,137
1,112,837
1,574,759-1,434,696
2,139,635-1,049,211-336,287
136,235
361,952
635,492-89,714201,783
2,550-7,967-417,602
170,135
180,460
1,360,015
265,083-492,965-3,390,662
423,245
1,406,722
408,479

1,963,899
12,259,855
223,148
401,521
1,759,936
627,932-78,984
222,315
20,043-95,145-15,936,735
157,433
787,046
1,690,803
1,445,585-491,441
309,670-1,180,367
607,201
826,356
3,556,175-5,163,019-2,183,528
75,792
97,717
1,435,962
249,395-35,579
84,3031,243-547,614-30,337-15,240
332,607
639,795-250,415
0-113,066-257,805-947,844-56,095-1,520,707

131,805
958,816
90,782102,018
22,157
177,398-28,764
43,5602,513-866,346-46,167
15,443
19,682
0732,430-529,304
9,200-992,830-505,930
430,259
296,618-68,4592,542,198
2,535,467
86,934
119,838
222,529
188,753-50,984
49,914-36,609-1,004,205-20,323
0-42,9208,366-275,828-1,018,823
84,138-2,377,507
130,2623,542,213
187,6422,328,861

3,211,628
4,215,057
209,787
407,237
88,430940,412-58,114102,386-468,880-1,361,142-18,603-1,131,288-153,417
33,843-34,914-582,498
156,576-1,456,746
15,5493,269,418
156,394
4,329,485-34,900
5,035,016
229,091
401,531376
756,336-37,863
88,196-153,280-1,741,139-374,492
0-220,955
707-960,614-1,971,738
267,974444,332
459,748-1,751,818
417,039
888,180

5,040,076
9,248,993
291,543
419,858
657,611754,098-18,150
97,871-1,102,679-2,080,806-2,363,553
0-68,480
55,629-148,139-1,437,205-49,538-3,016,113
489,763
4,612,033
403,629
6,746,366

1,119-5,955-4,045-748-1,583-61,443-765-13,941-448,301-

9,749-42,051-131,377
121,990

34,547-103,763-532,070-

11,354-128,844-314,808
2,038-144,595-1,223,468
7,494

19,419-205,658-1,422,841
151,390

219,363-235,890-1,624,535
48,787

168,882-77,366-3,733,862
34

234,130-41,944-2,498
10,577313,717-61,382-55,511
16,513420,293-82,088-1,456,065
4

517,646-102,084-1,396,074
57,431

629,567-102,025-2,241,394
7,561-1,011,513-393,440
390,242-99,706-223,576-186,734-277,199
472,950-25,498-449,726-776,990-53,192-197,949-3,795,977-1,150,000-84,297-96,915-165,735-640,101
1,243,333-82,476-354,863-3,305,766-16,032
656,981-171,704-692,335

3,355,538-300,019
360,057-165,424-379,273

486,273-60,000
855,185-191,841-472,407

7,346,657
169,000-193,743-378,366

1,233,513-362,605-116,387-165,238-32,256-134,036-9,411,154-559,335-269,452

1,514,636-1,247,500-688,104-5,155,218-303,155-512,701

508,610-164,722-581,319

Proceeds from purchase of shares of subsidiaries
resulting in change in scope of consolidation--

120,489-

678,778-

1,307,465

-

-

-

-

-

-

-

-

Purchase of investments in subsidiaries
resulting in change in scope of consolidation--614,084

-

-

-

-

-

-

-

-

-

-5,678,052-447,950--

Proceeds from sales of investments in subsidiaries
resulting in change in scope of consolidation--

228,739

-

-

-

-

14,31911,402,523

2,090,000

-

-

-

-

-

Cash flows from operating activities
Income before income taxes and minority interests
Depreciation
Amortization of software
Impairment loss
Amortization of goodwill (2003–)
Amortization of goodwill (–2003)
Interest or dividends income
Interest expenses
Foreign exchange gains (losses)
Investment profit (loss) on equity method
Gain on change in equity
Gain on sales of shares of subsidiaries and associates
Gain on sales of investment securities
Loss on valuation of investment securities
Increase in accounts receivable, trade
Increase (decrease) in investment securities for sale
Increase (decrease) in allowance for investment loss
Increase (decrease) in receivables–other
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in deposits
Other
Sub-totalInterest and dividends income received
Interest expenses paid
Income taxes paid
Income taxes refund
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Payments for aquisition of tangible fixed assets
Payments for aquisition of intangible assets

Payments for sales of investments in subsidiaries
resulting in change in scope of consolidation

-

-

-

-1,224-765,418----2,754,385--3,249-----346,608--65,280
464,784-1,106,365
213,684-1,945,578-1,717,532
460,376-268,479-871,954
352,222-3,115,024-500,000
22,897-468,985-560,589
3,911-88,481-73,500
252-84,177-178,350
141,764-662,330-142,999
8,842-75,873
6,942-370,598
66,913-418,903-51,000
211,882-4,189,218-214,329
893,354-951,521-332,291
346

Proceeds from sales of stockes ofsubsidiaries and affiliates

-

-

-

1,165,200

234,000

489,029

181,125

610,930-

32,000--4,303,720-

2,613,908

Proceeds from withdrawal of investments insilent partnership

-

-

-

-

-

-

3,000,000

4,492

-

-

-

-

-

-

-

-338,424

307,320

17,602-426,005

309,221

20,423377,269-112,676-777,609

386,991

73,234-2,549,232-51,296-48,610-98,894-249,150-580,017-43,055-32,734

919,237-428,000
Net increase (decrease) in long-term borrowing-67,663
Proceeds from issuance of bonds
Redemption of bonds
Payments for retirement by purchase of bonds
Proceeds from issuance of common shares
1,414,900
Cash dividends paid
Proceeds from stock issuance to minority shareholders
Cash dividends paid to minority shareholders
Proceeds from deposits received
Repayments of deposits received-

717,818
417,700
292,975
7,143-

1,065,638
598,240-87,663294,600
84,081
176,380-

6,850,448-903,750
356,000
3,394,115-48,000
175,998
897,093-20,960
3,001,255-

573,881
77,500-611,665
194,809-96,000-2,576,420
33,8951,750,255-28,125
2,137,241-302,463

2,806,777
270,000
2,494,440
300,000-436,000
54,327269,360-25,455
2,840,157-2,937,062-203,196-331,916-411,770-100,000
18,734
672,604-50,863-

1,592
262,788
1,077,180-988,000
43,777
94,169-113,532--5,152,847-1,168,000-2,678,900-376,000
7,530-908,511
221,369-44,501--3,294,577-2,122,000-191,362-40,000-923,440--568,188-110,000-499,368
72,884-6,693-

15,273,408
7,440,000-387,054
8,244,784-711--1,816,526-10,640,000
6,586,654
2,611,188-216,607-

11,260,971
3,300,000
1,952,051
136,932-233,735
6,371,344-

1,390,209
12,245,000
3,986,225
54,240-233,941
3,400-404,163-

Payments from changes in ownership interests in
subsidiaries that do not result in change inscope of consolidation

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-14,087,596

other

-

-

-

-1,304-5,146-22,98813-374,788-205,835-17,774-25,011-23,609-157,762-265,621-172,954

Purchase of investment securities
Purchase of stocks of subsidiaries and affiliates
Proceeds from sales of investment securities

Payments for investments in real estates
Other
Cash flows from financing activities

Net increase (decrease) in short-term borrowing

Effect of exchange rate changes oncash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents fromnewly consolidated subsidiary
Decrease in cash and cash equivalents resulting fromexclusion of subsidiaries from consolidation
Cash and cash equivalents at end of year

62

DIGITAL GARAGE ANNUAL REPORT

2,348-1,032129-1,276

-881

573

853

2,882

-2,471-429-2,51382,718422,300

21,707

1,954,918-69,365
443,362

742,889
373,996

846,973
1,116,886

1,405,766
1,963,860

2,702,462
3,369,626

1,399,799
6,072,088

3,932,260
7,471,888-558,462
11,509,880

4,155,237
10,951,418-7,224,513
15,100,424-604,135
7,875,910

8,487,171
7,271,775

3,332,039
15,758,947

6,092,559
19,090,986

8,893,814
25,183,545

-

-

-

-

-

-

105,731

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-6,232

-

-

-

-

-

-

373,996

1,116,886

1,963,860

3,369,626

6,072,088

7,471,888

11,509,880

10,951,418

15,100,424

7,875,910

7,271,775

15,758,947

19,090,986

25,183,545

34,077,359

DIGITAL GARAGE ANNUAL REPORT

63

09 CORPORATE INFORMATION

Company Information (as of June 30, 2015)

Share Information (as of June 30, 2015)
120,000,000

Company name

Digital Garage, Inc.

Authorized shares

Head office

DG Bldg., 3-5-7 Ebisu Minami, Shibuya-ku, Tokyo 150-0022, Japan

Issued shares

47,277,200

Established

August 17th, 1995

Voting rights

470,168

Phone

03-6367-1111 (Main)

Shareholders

14,836

Fax

03-6367-1119

Stock listings

JASDAQ, Tokyo Stock Exchange

Fiscal year end

June 30th

Major Shareholders

Stock capitalization

7,435 million yen

Total number of shares issued
Number of employees

Shares Owned

Ownership
Percentage

Kaoru Hayashi

6,766,800

14.39

47,277,200

Dentsu Inc.

3,300,000

7.02

509 [consolidated]/274 [non-consolidated]

The Bank of New York 133524

1,804,300

3.84

TIS Inc.

1,483,800

3.16

JPMCB CREDIT SUISSE SECURITIES EUROPE—JPY 1007760

1,246,483

2.65

The Master Trust Bank of Japan, Ltd. (Trust accounts)

1,193,700

2.54Japan Trustee Services Bank, Ltd. (Trust accounts)

1,088,700

2.32

NORTHERN TRUST CO. (AVFC) RE 15PCT TREATY ACCOUNT

880,700

1,87

JPMorgan Chase Bank 385166

797,300

1.70

Credit Saison Co., Ltd.

655,200

1.39

Organization Chart (as of June 30, 2015)

Digital Garage, Inc.

*Share ownership percentages were calculated based on issued shares net of treasury shares (256,800 shares).

Shareholders’ Meeting

Board of Auditors

Kakaku.com, Inc.
DG Incubation, Inc.

Open Network Lab, Inc.
Wikia Japan KK

Number of Shareholders

Board of Directors
Neo Innovation,
Inc.

President and Group CEO

Management Committees

17,821

Neo Innovation
Sinagpore Pte. Ltd.
17,000Digital Garage US, Inc.

New Context
Services, Inc.

15,06915,917

14,83615,00013,066

13,000GCEO’s Office

Digital Garage
Development LLC

11,000

App Works

Open Innovation Div.

12,235

10,879Dentsu ScienceJam Inc.

9,000

10,127

7,892

7,000

7,680

BI.Garage, Inc.
5,000
Digital Science Lab. Inc.

Corporate Strategy Div.
• Corporate Strategy Dept.
• Accounting Dept.
• Legal Dept.
• Information Systems
Strategy Dept.
• General Affairs Dept.
• Human Resources Dept.

Marketing Technology
Company(formerly DG&Ibex Company)

DK Gate, Inc.

DIGITAL GARAGE ANNUAL REPORT

2011.62011.122012.62012.122013.62013.122014.62014.122015.6

Share Ownership Distribution
ECONTEXT, INC.

econtext ASIA Limited
VeriTrans Inc.

NaviPlus Co., Ltd.

eCURE Co., Ltd.

Other Japaneseinstitutions
0.83% (124)iResearch Japan
Co., Ltd.

Financial
institutions
0.08% (12)econtext ASIA
EC Fund

Consolidated Subsidiaries

Non-Japanese individuals
1.08% (160)
Investment
securities firms
0.29% (43)14,836

JJ-Street

Internal Audit Office

64

2010.12

LCO-Creation
Singapore Pte. Ltd.

• Marketing Business Div.
• Web Business Div.
• Business Strategy Office• Segment Strategy Office

Headquarters Organization

3,000

Individuals/
other97.71%(14,496)

shareholders

Treasuryshares
0.01% (1)Treasury shares
0.54% (256,800)

Investment
securities firms
4.89% (2,309,180)
Non-Japaneseindividuals
33.71%(15,936,646)
Other Japaneseinstitutions
13.13%(6,209,500)

47,277,200

Individuals/other40.15%(18,982,974)

sharesFinancial
institutions
7.58%(3,582,100)

Affiliates

DIGITAL GARAGE ANNUAL REPORT

65

FOR THE NEXT
Looking Ahead to the Next 20 Years
Established in 1995, Digital Garage has followed every step of the Internet’s history overthese 20 years.
The wave of open innovation engendered by the Internet is now reaching into hardwareand biotechnology. And with such dramatic change taking place in fields of all kinds, thecoming 20 years will likely see people’s lives change with technical evolution even more
audacious than what we have seen in the 20 years to date.
Holding fast to our “first penguin” spirit as we work at the interface of the future andpresent, we will continue to build businesses that are beneficial for the world.
Expect great things from Digital Garage as we pioneer the coming 20 years.

66

DIGITAL GARAGE ANNUAL REPORT20YEARS